LIBRARY 

OF   THE 

UNIVERSITY  OF  CALIFORNIA. 
Class 


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^'-■-K 


i# 


Assessment  Life  Insurance 


A  Treatise  Showing  the  Origin,   Development  and 
Condition  of  the 

ASSESSMENT  SYSTEM  OF 
LIFE  INSURANCE 


An   Impartial   Review  of  the  System 
as  it  was  and  is 


By   MILHS   M.    DAWSON 


:yERS|T 

or 


The  Spectator  Company 
1896 


(\%\^ 

.-p' 


H&-n3 


lVa3N3S    ^w 


Entered  according  to  Act  of  Congress,  in  the  Office  of  the 

Librarian  of  Congress,  by  Miles  M.  Dawson, 

1894. 


PREFACE. 


Life  insurance  on  the  assessment  plan  has  reached 
such  proportions  in  the  volume  of  business  transacted 
and  the  benefits  annually  conferred  that  it  well  deserves 
the  study  of  both  insurance  men  and  sociologists. 

The  plans  and  problems  presented  by  assessment  societies 
are  so  various  as  to  involve  much  greater  complexity 
and  consequently  greater  difficulties  than  the  compara- 
tively uniform  plans  and  practices  of  the  regular  com- 
panies. In  the  past  this  subject  has  been  largely 
neglected  by  actuaries,  though  within  a  comparatively 
recent  period  some  of  them  have  taken  it  up  and  are  now 
doing  yeoman  work  in  this  field.  But  commonly  the 
attitude  of  actuaries  toward  the  systems  has  been  more 
or  less  contemptuous  ;  they  have  ignored  its  merits  and 
sometimes  exaggerated  its  demerits.  This  is  unfortunate 
both  for  the  associations  and  for  the  actuaries ;  for  the 
associations,  which  have  sorely  needed  actuarial  guidance, 
and  for  the  actuaries,  since  it  has  operated  to  narrow 
their  field  and  their  opportunities  for  earning  a  livelihood 
at  useful  labor.  In  fact,  the  scope  of  actuarial  science 
needs  to  be  extended  in  this  country  to  correspond  with 
its  scope  in  other  countries. 

The  history  of  assessmentism  in  America  is  one  of 
reaction  and  subsequent  evolution — of  reaction  against 
the  hard  and  fast  lines  of  legal  reserve  insurance  and  its 
illiberal  surrender  charges,  and  of  evolution  from  simple 
but  exceedingly  erroneous  and  dangerous  plans  to  highly 
specialized  and  approximately  accurate  plans. 


J 1551 1 


So  far  as  I  know,  this  history  has  never  before  been 
traced.  The  development  of  the  Friendly  Societies  in 
Great  Britain,  which  was  somewhat  similar,  has  been  set 
forth  by  Rev.  J.  Frome  Wilkinson  and  J.  Baernreither 
and  others,  so  that  the  student  need  not  be  ignorant  of 
the  advance  which  has  there  been  made  toward  safer  and 
better  methods  ;  but  nothing  bearing  on  similar  advances 
in  America  is  yet  to  be  had.  The  plans  and  systems 
have,  to  be  sure,  been  set  forth  by  an  able  advocate  of 
assessment  life  insurance,  Mr.  George  D.  Eldridge ;  and 
other  leading  friends  of  the  system  have  at  times  pub- 
lished their  views  of  some  of  its  phases.  But  the  purpose 
of  this  book  is  so  widely  different  from  that  of  any  other 
that  it  may  well  be  considered  a  complete  and  novel 
departure. 

Its  distinguishing  feature  is  that  there  is  no  axe  to 
grind.  It  is  not  in  advocacy  of  the  systems  of  these 
societies  nor  is  it  in  opposition  to  these  systems.  Its  aim 
is  merely  to  present  as  clearly  as  possible  the  actual  trend 
of  the  systems  and  the  reasons  therefor,  together  with 
some  hints  how  manifest  defects  may  be  remedied.  The 
merits  and  demerits  are,  so  far  as  possible,  given  equal 
prominence,  and  nothing  important  is  slighted,  though 
pains  have  been  taken  to  condense  as  much  as  could  be 
done,  without  impairing  the  value  of  the  work. 

Two  matters  which  have  come  to  my  attention  since 
the  book  was  written  deserve  notice  in  this  place.  One 
is  the  failure  of  the  United  Brethren  Mutual  Aid  Associa- 
tion, of  Pennsylvania,  an  institution  which  was  unques- 
tionably honestly  managed  and  which  gave  a  persistent 
and  thorough  test  to  the  possibilities  of  the  level  assess- 
ment system  or  uniform  rates  for  all  ages.  What  might 
have  been   done  had   there   been   a   change   of  system 


promptly  when  it  became  evident  that  this  was  to  be  un- 
successful cannot  be  surely  demonstrated,  and  is,  more- 
over, beside  the  question.  No  vSuch  change  was  made 
betimes  and  the  system  proved  disastrous.  In  view  of 
which  it  seems  every  candid  inquirer  must  be  convinced 
that  no  association  is  justified  in  experimenting  with  the 
plan  or  in  continuing  it  if  already  in  operation. 

A  matter  which  has  attracted  considerable  attention  re- 
cently is  the  limitation  which  is  now  put  by  law  on  the 
rights  of  associations  in  the  matter  of  prepaid  premium 
policies  and  endowments  ;  and  also  the  limitation  which 
should  be  imposed  upon  them.  As  may  be  seen  by 
reference  to  the  Assessment  Insurance  Manual  for  1896,* 
there  is  a  growing  tendency  among  the  associations  to 
issue  such  policies,  and  in  many  cases  not  to  make  clear 
and  unequivocal  provision  for  assessments  in  addition  to 
the  premiums  named  in  the  contracts.  The  Attorney 
General  of  Michigan  and  the  Insurance  Commissioner  of 
Wisconsin  have  called  in  question  the  authority  of 
assessment  associations  to  do  these  things,  and  the  latter 
has  secured  expressions  of  opinions  from  leading  actu- 
aries on  the  subject.  The  Insurance  Commissioner  of 
Michigan  has  since  admitted  all  the  associations  to  that 
State,  without  finding  that  any  were  transgressing  the 
law. 

This  book  sets  forth  fairly  the  view  of  its  author  as  to 
the  proper  development  of  associations  doing  business  on 
the  assessment  plan,  and  fairly  indicates  the  trend  which 
in  his  opinion  legislation  ought  to  take.  The  proper 
evolution  of  assessment  societies  is  toward  the  tried 
methods  of  regular  insurance,  and  no  obstacle  should  be 
put  in  the  way  of  their  following  that  course.     At  the 

*  Published  by  The  Spectator  Company. 


same  time  they  should  be  held  strictly  accountable  for 
the  additional  responsibilities  which  they  assume  when 
they  thus  depart  from  their  original  plans.  Having 
demonstrated  the  perilous  inaccuracy  of  the  old  plans  by 
their  own  experience,  they  should  not  be  permitted  to 
make  their  operations  under  the  new  plans  certain  to  be 
disastrous  by  disregarding  the  rules  of  safety  which 
experience  has  proven  to  be  necessary.  Thus  they 
should  be  held  accountable  for  every  dollar  which  they 
collect  beyond  the  agreed  quota  for  expenses  and  the 
actual  mortality  cost,  which  additional  amount  has  been 
collected  on  an  implied  agreement  to  reserve  the  same 
for  the  use  of  the  members  in  paying  future  mortality 
cost.  At  least  that  much,  with  its  interest  earnings, 
should  be  counted  as  a  reserve  liability  ;  and  if,  at  the 
mortality  and  interest  experience  of  the  association,  its 
rates  are  manifestly  insufficient,  together  with  this 
actual  reserve,  to  be  sustained  as  the  association  has 
expected  them  to  be  sustained,  an  immediate  increase  in 
rates  should  be  enforced.  By  no  other  means  can  the 
ignorant  and  unscrupulous  be  prevented  from  promising 
the  impossible  and  from  concealing  their  inability  to 
carry  out  these  promises  for  many  years.  Assessment 
life  insurance  companies  which  wish  to  protect  their 
reputation  and  shut  out  ruinous  competition  in  rates 
should  welcome  such  laws. 

M11.KS  M.  Dawson. 
Nkw  York,  April,  1896. 


Assessment  Life  Insurance. 


CHAPTER  TITI.KS. 

Page. 

PREFACE ...    iii 

THE  ASSESSMENT  PI.AN— WH AT  IS  IT  ? 3 

HOW  AND  WHY  IT   CAME  TO  BE 9 

ASSESSMENT    SOCIETIES— WHEN    THEY    CAME    TO 

BE 15 

A  BRIEF  HISTORICAL  REVIEW. 23 

THE  EVOLUTION  OF  ASSESSMENT  PLANS 32 

THE  PLAN  OF  LEVEL  ASSESSMENT  AT  ALL  AGES..     38 
ASSESSMENTS  GRADUATED  ACCORDING  TO  AGE...     45 

ARE  FIXED  GRADED  ASSESSMENTS  FEASIBLE? 52 

THE  NATURAL   PREMIUM,  OR  SLIDING  SCALE   AS- 
SESSMENT PLAN 57 

LEVEL  PRICE,  BUT  INCREASING  COST ;.     63 

ARE  THE  EQUATED  RATES  ADEQUATE  ? 69 

REINSURANCE  RESERVES 75 

VALUATIONS— COMMERCIAL  SOLVENCY 79 

—ULTIMATE  "  84 

LIMITED  PREMIUM   POLICIES 89 

ENDOWMENTS 93 

LATER  FORMS  OF  ENDOWMENT  INSURANCE 98 

ESSENTIAL  ELEMENTS  OF  THE  CONTRACT 102 

POLICY     CONTRACTS— RESERVATIONS    AND     MODI- 
FYING CLAUSES 107 

SURRENDER  CONDITIONS 11  r 

MODES  OF  GOVERNMENT 116 

THE  SITUATION  AND  OUTLOOK 121 


ASSESSMENT  LIFE  INSURANCE. 


THE  ASSESSMENT   PI.AN:     WHAT   IS   IT? 

If  one  had  defined  assessment  life  insurance  when  it  * 
was  new,  he  would  have  said  that  it  was  a  plan  by  which  1 
the  amount  of  a  claim  was  collected  after  the  death  of  the 
insured  by  levying  an  assessment  upon  the  living  mem-  v 
bers.  There  is  no  doubt  that  this  practice  of  post-mortem 
assessments  gave  the  name  to  this  plan  of  insurance,  nor 
that  the  plan  came  into  use  because  of  men's  unwilling- 
ness to  part  with  their  money  until  it  is  needed  and  as  a 
result  of  suspicion  of  the  accumulation  of  money  in  the 
hands  of  the  regular  companies.  This  sentiment  caused 
the  adoption  of  the  following  motto:  The  best  place  for  a 
dollar — (that  is,  until  required) — is  the  pocket  of  the  man 
who  made  it.  The  idea  was  to  call  in  money  as  needed 
and  not  a  moment  before;  and  the  assessments  were  orig- 
inally a  certain  sum  upon  each  living  member  at  the  death 
of  a  member.  The  benefit  paid  at  the  death  of  a  member 
was  limited  to  what  was  collected  in  this  way  by  one 
assessment. 

This  was  not  altogether  satisfactory;  it  was  not  pleas- 
ant for  a  man  to  carry  what  he  supposed  to  be  a  policy 
good  for  a  thousand  dollars  and  for  his  wife  to  realize  but 
a  few  hundreds  from  the  assessment.  So  the  plan  was 
varied  by  most  societies  so  as  to  provide  for  the  payment 
of  the  full  amount  and,  where  the  laws  did  not  prohibit, 
it  became  customary  to  guarantee  full  payment.  This 
involved  so  far  a  surrender  of  the  uniform  assessment  idea 


that  it  was  easy  also  to  make  another  important  change 
by  levying  advance  assessments;  few  companies,  except 
moribund  institutions  dragging  unpaid  losses,  now  assess 
after  the  deaths  occur.  They,  instead,  carry  on  hand  funds 
sufiScient  to  meet  all  demands  until  the  usual  date  of  the 
next  assessment.  This  practice  is  not  strictly  in  accord- 
ance with  the  original  principle  that  no  money  should 
be  collected  until  actually  required;  but  the  interval  be- 
tween receipt  and  expenditure  is  so  short  in  such  cases 
that  the  principle  is  substantially  conserved.  Besides,  it 
was  always  manifestly  unfair  to  permit  a  member  to  dis- 
continue without  paying  for  the  protection  already  enjoyed; 
he  now  pays  in  advance.  To  suit  the  facts  under  these 
changed  conditions,  assessment  life  insurance  must  be 
defined  as  that  plan  which  charges  variable  premiums, 
perhaps  at  fixed  ratios  as  between  individual  members, 
aggregating  only  sufficient  to  cover  current  losses  and 
fexpenses. 

It  will  be  noted  that  in  this  as  in  the  original  and  sim- 
pler form  the  fundamental  idea  is  "pay  as  you  go."  There 
was  no  place  for  reserves  other  than  sufficient  to  cover 
demands  up  to  the  receipt  of  the  next  assessment;  and,  as 
was  ludicrously  patent  in  the  consternation  caused  by  the 
Illinois  Senate  Bill  No.  loo,  in  1893,  ^^^  managers  had 
no  idea  that  such  an  advance  collection  was  a  reserve. 
Although  many  if  not  most  societies  have  claimed  to  in- 
tend furnishing  insurance  at  an  approximately  level  cost, 
a  reserve  was  considered,  in  the  picturesque  phraseology 
of  the  friends  of  the  system,  *  'the  fifth  wheel  of  a  wagon. ' ' 
They  might  differ — in  fact  they  do  differ — about  modes  of 
distributing  the  losses  in  assessments;  one  assesses  all 
equally,  another  at  certain  ratios  fixed  by  ages  at  entry, 
and  another  at  shifting  ratios  according  to  current  ages; 


but  for  a  long  time  they  were  all  agreed  that  a  reserve( 
was  not  merely  unnecessary,  but  useless  and  dangerous. 
But  after  a  time  the  simple  science  of  the  natural  pre- 
mium tables  made  it  clear  that,  whether  a  society  regarded 
it  or  not,  there  is  a  gradual  and  inevitable  advance  in  the 
cost  of  insurance  with  the  increase  of  hazard  because  of 
the  advancing  ages  of  the  insured.  And,  consequently, 
several  co-operative  companies  gave  up  the  principle  of 
''pay  as  you  go,"  and  collected  such  amounts  in  excess  . 
of  current  expenses  and  losses  as  in  the  varying  opinions  \ 
of  their  managers  would  be  likely  to  hold  the  premiums 
stable.  The  variety  of  views  as  to  the  cause  of  alterations 
in  current  cost  and  the  mode  of  remedying  them  is  indi- 
cated by  various  terms  adopted  to  designate  the  reserve 
accumulations — emergency  fund,  guarantee  fund,  mortu- 
ary reserve  fund,  special  reserve  fund  and  the  like. 

This  is  a  very  great  change  from  the  original  basis 
and  utterly  invalidates  the  narrow  and  specific  definition 
of  assessment  insurance  which  has  been  given.  The  new 
definition  must  cover  practically  all  forms  of  insurance 
which  do  not  make  compliance  with  legal  reserve  laws  fun- 
damental; in  fact  such  compliance  or  non-compliance  may 
be  made  the  shibboleth  to  distinguish  the  two  forms  of 
insurance.  But  the  definition  would  not  be  complete 
if  left  thus,  although  comprehensive  enough  for  our  pur- 
pose. In  order  to  fully  understand  the  distinctions,  how- 
ever, we  should  first  define  what  compliance  with  reserve 
laws  means.  The  standard  introduced  in  this  country  by 
Elizur  Wright  has  now  been  almost  everywhere  adopted; 
it  requires  a  company  to  be  able  to  demonstrate  its  solv- 
ency, assuming  mortality  according  to  the  actuaries' 
table  and  interest  at  four  per  cent,  and  counting  as 
resources  only  such  part  of  the  actual  premium  as  equals 


the  net  premiums  derived  from  that  mortality  table  and 
the  assumed  interest.  In  instance  a  company's  premium 
on  a  certain  policy  maybe  $20.50  per  ^1,000  of  insurance; 
but  in  this  computation  only  $14.72  will  be  considered  an 
asset  available  to  pay  claims.  The  difference,  amounting 
in  this  case  to  I5.78  and  known  as  the  loading,  is  con- 
sidered a  provision  for  expenses  only.  Should  the  actual 
premiums  be  less  than  $14.72,  the  laws  of  some  States 
and  the  practices  of  all  insurance  departments  would 
require  a  special  reserve  to  make  good  the  deficiency. 
In  other  words,  the  reserve  laws  prohibit  in  effect  the 
guaranteeing  of  a  rate  below  the  net  rate  according  to  the 
standard  tables  and  interest.  This  may  properly  be  re- 
garded as  something  of  a  hardship.  The  sum  of  $14.72 
is  the  net  premium  for  a  policy  issued  at  age  25.  There 
is  in  existence  a  policy,  starting  at  about  the  time  of  the 
introduction  of  reserve  laws  upon  a  life  then  at  40,  which 
has  run  32  years  at  an  average  cost  of  less  than  this  net 
premium  of  ^^14.72  and  now  costs  but  about  $8.00  a  year. 
It  may  be  here  said  that  it  was  by  no  means  Elizur 
Wright's  intention  that  the  standard  he  introduced 
should  be  permanent  and  high  rates  compulsory  in  con- 
sequence. On  the  contrary,  he  favored  devising  a  gen- 
uine American  mortality  experience  and  a  very  little  in- 
vestigation proved  to  him  that  rates  might  be  consid- 
erably reduced  with  safety.  It  is  the  mistake  of  the  tyro 
in  actuarial  science  to  suppose  that  all  wisdom  is  em- 
bodied in  the  prevailing  tables,  which  are  but  scientific 
tools;  just  as  it  is  the  mistake  of  the  assessment  advocate 
to  suppose  that  all  mischiefs  in  regular  insurance  arise 
from  the  standard  reserves. 

Had  there  been  no  standard  reserves,  there  might  have 
been  no  assessment  insurance;   had  there  been  no  inhibi- 


tion  upon  making  such  fixed  rates  as  managers  chose,  there 
would  have  been  no  occasion  for  the  adoption  of  variable 
rates.  Even  had  there  been  a  low  legal  standard, 
permitting  all  possible  latitude  consistent  with  safety,  it 
is  not  probable  that  societies  issuing  policies  without 
limiting  their  premiums  would  have  flourished;  but  the 
logic  of  the  situation  demanded  a  revolt  from  what 
seemed  an  arbitrary  regulation  and,  since  companies 
could  not  experiment  with  fixed  rates,  they  could  and  did 
experiment  yet  more  wildly  with  variable  ones. 
Many  of  them  are  now  seeking  to  solve  the  reserve 
problem  in  a  more  or  less  scientific  manner.  They  com- 
monly employ  for  this  purpose  mortality  tables  more  in 
accord  with  their  experience  than  the  actuaries' ,  interest 
rates  approximating  current  experience  and  often  certain 
estimates  of  benefits  from  discontinuance,  all  of  which 
will  be  considered  in  the  proper  place.  They  are  doubt- 
less less  particular  about  the  absolute  sufiiciency  of  these 
assumptions  than  they  would  be,  were  the  rates  they 
make  permanent  and  unalterable;  but,  instead,  they 
tacitly  or  expressly  reserve  the  right  to  temporarily  or 
permanently  increase  these  rates. 

That  reservation,  then,  constitutes  the  essential  dis- 


equivalent,  taking  into  account  the  actual  experiences  of 
the  two  companies.  Another  definition  has  been  suggested 
by  the  adoption  of  the  term  "natural  premium  com- 
panies" by  many  assessment  advocates;  but  the  term 
has  already  a  definite  significance.  It  refers  to  a  method 
of  distributing  losses,  by  collecting  from  year  to  year 
only  the  current  costs  of  insurance;  and,  as  we  shall  see, 
it  may  be  used  either  by  regular  or  assessment  compariies. 
Indeed,  it  is  now  universally  used  by  regular  companies 
in  taxing  the  costs  of  insurance  against  individual  policies. 
As  a  principle  the  natural,  premium  idea  has  always 
been  supported  by  regular  companies  and  almost  as 
invariably  opposed  by  assessment  companies  which  denied 
the  necessity  of  increasing  cost. 

The  distinction,  then,  between  regular  and  assessment 
insurance  may  be  stated  as  follows:  Regular  insurance 
contemplates  a  fixed  premium,  or  a  fixed  maximum 
premium,  which  thus  limits  the  resources.  Consequently, 
it  recognizes  the  necessity  of  a  reserve  clearly  ample  to- 
gether with  future  receipts  to  in  any  event  meet  all  con- 
tract demands.  This  logically  follows  from  the  use  of  a 
fixed  premium.  Assessment  insurance  contemplates  a 
premium,  ordinarily  constant  or  variable  as  the  case  may 
require,  but  never  fixed  or  limited.  Consequently,  while 
perhaps  admitting  the  desirability  of  carrying  a  reserve 
such  as  in  the  opinion  of  the  managers  will  probably  be 
sufiicient  together  with  a  continuation  of  the  ordinary 
premiums  to  meet  all  obligations,  it  does  not  recognize 
the  necessity  for  reserves  ample  in  any  event  to  help  out 
these  ordinary  premiums,  for  the  reason  that  future 
premiums  may  themselves  be  increased.  This  follows 
^Iso  logically  from  the  use  of  a  variable  or  flexible 
premium. 


THK  ASSESSMENT  PLAN  :    HOW  AND  WHY  IT 
CAME  TO  BE. 

From  the  standpoint  of  its  history  in  this  country,  it  is( 
not  inappropriate  that  the  distinction  between  assess- 
ment and  other  plans  should  be  found  in  the  absence  or\ 
presence  of  the  legal  reserves.  In  other  countries  where  )[ 
there  are  no  hard  and  fast  reserve  regulations,  an  assess- 
ment company  might  have  been  defined  as  a  company 
which  disregarded  reserves  or  held  preposterously  inade- 
quate reserves.  The  distinction  which  is  crucial  in  this 
country,  namely:  between  companies  which  reserve  the 
right  of  unlimited  assessment  to  help  out  premiums  and 
companies  which  guarantee  their  rates,  would  not  serve  ' 
everywhere.  Many  of  the  mutual  companies  abroad  do 
not  fix  their  premiums,  though  calculating  them  by  the 
standard  tables  and  sustaining  big  reserves;  no  one 
would  think  of  calling  such  assessment  companies.  Yet 
it  would  be  possible  in  this  country  for  a  company  of  that 
character  to  do  business  under  the  assessment  laws,  just 
as  it  would  be  possible  for  it  to  do  business  under  the 
reserve  laws;  which  further  illustrates  the  fact  that  the 
essential  distinction  is  compliance  or  non-compliance  with 
the  legal  reserve  laws. 

These  laws  presume  that  companies  have  engaged  to 
pay  fixed  sums  upon  certain  contingencies,  conditioned 
on  the  payment  to  them  of  fixed  or  limited  sums.  All 
the  factors  being  definitely  known,  excepting  only  the 
contingencies  and  the  interest  to  be  realized  on  invested 
funds,  the  computation  of  resources  and  liabilities  on 
some  reasonable  mortality  and  interest  assumption  is 
clearly  indicated.     In  the   absence   of  definite  promises 


10 


/or  the  presence  of  the  right  of  indefinite  assessment, 
■>  the  necessity  for  such  a  computation  is  not  apparent. 
But  when  level  premiums  are  intended,  whether  promised 
or  not,  common  sense  suggests  that  they  should  be  based 
on  some  reasonable  hypothesis  and  that  reserves  should 
be  held  in  accord  with  that  hypothesis.  Non-compliance 
with  the  more  or  less  arbitrary  conditions  of  the  legal - 
reserve  laws  is  not  a  valid  excuse  for  non-compliance 
with  what  is  requisite  to  good. business  management. 

The  adoption  of  a  level  premium  plan  divorces  the 
current  price  of  insurance  from  the  current  cost;  for  the 
level  premium  is  the  average  of  the  annual  costs  for  the 

[term  of  the  policy,  all  things  considered,  and  conse- 
quently higher  than  the  cost  in  the  earlier  years  and 
lower  in  the  later  years.  This  mere  fact  offers  to  unwise 
men  an  opportunity  to  furnish  insurance  at  its  temporary 
cost,  unfairly  contrasting  that  cost  with  the  fair  price  for 
a  long  term  or  life  policy.  The  fact  might  well  be  that 
insurance  under  the  latter  policy  was  really  costing  less, 
but  the  buyer  does  not  always  clearly  distinguish  price 
and  cost,  especially  when  the  price  is  cost  to  him.  It  is 
not  probable  that  any  considerable  part  of  the  public 
would  have  been  misled  by  this  if  the  practice  of  level 
premium  companies  had  been  to  recognize  the  assured's 
ownership  of  all  unexpended  funds,  to  account  to  him 
for  their  expenditure  and  to  pay  to  him  on  withdrawal  all 
remaining  on  hand.  In  so  clear  an  atmosphere,  it  would 
have  been  impossible  for  men  to  misconceive  the  nature 
of  the  operations  of  their  companies,  and  there  would  not 
have  been  an  occasion  for  revolt.  It  is,  however,  a  mat- 
ter of  history — contemporaneous  history,  shame  to  say  it, 
as  well  as  of  former  years — that,  on  the  contrary,  care  has 
been  taken  to. mystify  the  policyholder,  to  refuse  to  recog- 


nize  his  ownership  of  the  assets  of  his  policy,  to  heavily 
discount  his  funds  upon  premature  surrender. 

So  long  as  it  could  be  done,  companies  hoodwinked 
their  patrons  into  believing  the  systems  of  level  premium 
life  insurance  and  of  fire  insurance  similar — that  if  one 
failed  to  pay  a  premium  his  insurance  stopped  and  that 
was  all.  Such  sophistry  fostered  and  justified  the  "flat 
assessment"  system;  for  if  there  was  nothing  left  of 
course  no  more  than  current  cost  was  collected,  or  at 
least,  need  have  been  collected.  A  very  little  experi- 
menting on  the  part  of  the  people  with  the  new  plan 
developed  the  fact  that  the  cost  was  far  less  than  the 
price  and  convicted  the  disingenuous  companies  out  of 
their  own  mouths  of  extortion  or  extravagance. 

Thus  the  assessment  plan  was  born,  as  the  result  of 
the  people's  dissatisfaction  with  unfair  treatment  by  the 
companies,  and  the  result  of  the  false  doctrine  those  com 
panics  themselves  taught  to  conceal  their  unjust  deeds.^ 

The  advent  of  life  policies  to  be  paid  for  within  a  lim- 
ited term,  and  of  endowment  insurance,  made  it  impossible 
for  the  pretense  to  longer  continue  that  there  was  no  in- 
vestment in  life  insurance.  The  injustice  of  forfeitures 
was  at  once  apparent;  it  became  evident  that  a  policy- 
holder paid  each  year  for  more  than  he  was  concurrently 
benefited  by  insurance.  Yet  companies  were  so  loath  to 
do  justice  in  the  matter  that  but  one  company  gave  any 
surrender  value  before  the  passage  of  the  non -forfeiture 
laws  of  Massachusetts;  and  little  has  been  done  since 
then  in  this  direction  except  under  the  compulsion  of  law. 
What  has  been  done,  has  ever  been  granted  as  a  gracious 
privilege  and  not  recognized  as  a  right;  and  the  public 
has  grown  to  expect  companies  to  be  less  liberal  than 
they  promise  rather  than  more  liberal.     The  effect  upon 


12 


the  growth  of  assessment  insurance  of  such  behavior  on 
(the  part  of  regular  companies  could  not  but  be  marked; 
for  men  said  that  if  they  could  not  resume  their  excess 
payments  at  will,  it  was  certainly  safer  to  pay  current 
cost  and  retain  the  excess  in  their  pockets. 

This  might  not  have  resulted  in  the  foundation  of  as- 
sessment companies,  that  is,  of  companies  which  do  not 
limit  their  premiums,  had  it  not  been  for  the  legal  reserve 
laws.  These  came  hand  in  hand  with  the  first  non-forfeit- 
ure laws,  both  proppsed  and  supported  by  the  veteran 
Elizur  Wright.  Previous  to  the  adoption  of  these  laws, 
American  daring  in  the  way  of  fixed  premiums  scarcely 
knew  a  limit  and  the  occasion  for  the  precaution  of  leav- 
ing the  door  open  for  assessment  was  not  apparent.  One 
company  which  was  charging  ridiculously  inadequate 
rates,  reported  a  certain  small  sum  as  its  * 'reinsurance 
reserve"  because  another  company  had  offered  to  rein- 
sure for  that.  When  pressed,  it  claimed  to  have  used  6 
per  cent  interest  in  its  calculations;  wise  old  Blizur 
Wright,  not  to  be  tricked  by  such  wild  claims,  upon  ex- 
amination found  the  company  insolvent  on  that  basis. 
Had  such  companies  been  permitted  to  continue  until 
they  arrived  at  immediate  insolvency,  the  state  of  inabil- 
ity to  meet  current  demands,  there  would  have  been  no 
need  for  "flexible"  premium  companies;  but  the  situation 
would  hardly  have  been  better. 

Therefore,  it  may  properly  be  said  that  the  assessment 
plan  arose  primarily  from  the  unjust  practices  and 
maliciously  false  teachings  of  the  regular  companies,  and, 
secondarily,  from  the  legal-reserve  laws  found  necessary 
to  restrain  the  reckless  management  of  companies.  There 
was  need  both  of  room  for  experiment  by  the  people  and 
of  insurance  of  a  temporary    and   cheap  sort;  both  could 


13 

be  supplied  by  the  assessment  plan.  This  view  of  the 
case  is  borne  out  by  the  experience  of  Australia  in  gen- 
eral and  New  South  Wales  in  particular,  where  the  people 
have  become  accustomed  to  different  treatment  and  dif- 
ferent doctrines  from  what  are  common  in  our  nation.  The 
Australian  Mutual  Provident  Society,  now  a  giant  com- 
pany with  over  $60,000,000  cash  assets,  has  for  many 
years  accustomed  the  people  in  theory  and  practice  to  the 
idea  that  the  insured  had  the  ownership  of  all  his  moneys 
remaining  unexpended,  and  that  his  rights  should  be 
modified  no  further  than  is  requisite  to  preserve  the  gen- 
eral interests  of  the  policyholders.  In  addition  to  this, 
there  are  no  arbitrary  reserve  laws,  each  company  being 
a  law  unto  itself.  Thus  there  is  no  occasion  for  assess- 
ment companies;  they  would  be  regular  companies,  any- 
how, the  moment  they  began  business.  In  fact,  they  are 
conspicuously  absent. 

Rival  companies,  whether  regarding  standard  tables  or 
not,  could  not  in  their  soliciting  confuse  price  and  cost  in 
a  company  like  the  Australian  Mutual  Provident;  the 
distinction  is  very  clear  when  one  can  have  an  account- 
ing at  any  time  and  withdraw  all  that  reason  awards  him. 
Yet  even  where  this  is  true,  there  is  something  else 
needed  before  the  uses  for  the  assessment  plan  are  ex- 
hausted, imperfect  though  it  be.  The  regular  companies  j' 
have  always  been  singularly  unwilling  to  supply  pure 
insurance  from  year  to  year  at  current  cost  or  term  poli- 
cies, renewable  at  pleasure,  at  a  really  low  rate.  This/ 
assertion  may  startle  some  regular  insurance  men.  who 
are  wont  to  consider  the  new  term  and  natural  premiums 
very  low — and,  indeed,  they  are  a  distinct  advance 
toward  supplying  the  popular  demand.  But  they  do  not 
go  far  enough.    The    average  rate    demanded   is    not 


materially  lower  in  most  cases  than  the  most  favorable 
dividends  paid  make  whole  life  policies  in  some  companies 
after  the  second  year.  In  other  words,  they  are  larger 
by  nearly  the  amount  of  the  deposit  for  reserve  in  a 
whole  life  premium  than  they  need  be.  When  one  com- 
pares them  with  the  actual  current  cost  in  some  of  the 
fraternities,  or  even  in  old  assessment  companies,  he 
often  finds  the  term  or  natural  premiums  twice  or  even 
three  times  as  large,  and  he  cannot  wonder  that  assess- 
ment companies  now  transact  almost  one-half  the  business 
of  the  country  in  volume  and  nearly  three-fourths  in  num- 
ber of  lives,  excluding  industrial  insurance  from  the 
account.  It  is  not  enough  that  the  insured's  title  to  the 
excess  of  his  payments  over  current  cost  is  recognized; 
it  is  not  enough  that  an  intelligible  account  is  rendered 
him  on  demand,  and  a  manifestly  fair  settlement  given 
upon  withdrawal.  There  are  many  who  cannot  afford  to 
pay  the  excess  for  a  future  advantage,  who  at  best  carry 
inadequate  protection  now.  Until  these  are  provided  for 
by  regular  companies,  there  will  always  be  an  office  for 
assessment  companies  to  perform. 


15 


ASSESSMENT  SOCIETIES.— WHEN  THEY  CAME 
TO  BE. 

Prior  to  the  great  war  of  the  rebellion,  assessment  life 
insurance  was  unknown  in  the  United  States.  There  were 
already,  to  be  sure,  fraternal  organizations  for  mutual 
relief  such  as  the  Odd  Fellows,  analogous  in  many  re- 
spects to  the  friendly  societies  of  Great  Britain  and  often 
allied  to  them.  But  though  these  organizations  furnished 
sick  and  burial  benefits,  they  did  not  in  this  country  as  in 
England  come  to  do  so  as  a  business  matter  instead  of  an 
act  of  brotherly  charity.  No  definite  amounts  were  pay- 
able,without  regard  to  the  financial  position  of  the  mem- 
ben/mstead.  whatever  was  found  absolutely  requisite  for 
the  relief  of  an  ill  and  destitute  brother  or  the  widow  of  a 
deceased  brother  was  furnished  from  the  common  fund. 
The  funeral  benefits  were  at  all  times  inconsiderable  until 
about  the  time  of  the  war. 

Yet  it  is  arbitrary  to  fix  the  date  of  the  birth  of  the  as- 
sessment plan  by  an  event  so  utterly  disconnected  as  the 
war  of  the  rebellion;  it  was  but  a  chance  that  state  regu- 
lation and  inspection  of  insurance  was  inaugurated  by 
Elizur  Wright  in  Massachussets  just  before  the  election 
of  Abraham  I^incoln  to  the  presidency.  There  is  a 
causal  instead  of  a  casual  connection  between  the  date  of 
the  establishment  of  state  supervision  together  with  the 
system  of  arbitrary  net  valuation,  and  the  inception  of 
assessment  plans  of  insurance.  It  is  possible  that  the 
abolition  movement  which  led  to  the  war,  was  also  a 
remote  cause  of  this  action;  for  not  only  was  the  first 
attempt  at  state  control  inaugurated  in  Massachussetts, 
the  New  England  center  of  abolition,  but  Elizur  Wright 


16 

had  been  one  of  the  foremost  among  the  pioneers  in  that 
great  movement  for  human  freedom.  It  is  not  improbable 
that  the  impending  success  of  that  movement,  which  was 
no  longer  despised,  left  him  free  to  give  his  attention  to 
other  evils.  The  awakening  of  the  public  conscience  in 
that  great  question  of  human  rights,  doubtless  also 
assisted  to  bring  about  the  reforms  of  life  insurance 
enforced  by  Massachussetts  from  1858  to  1865.  There 
may  thus  be  a  remote  connection  between  the  causes  of 
the  war  and  the  birth  of  assessment  insurance,  but  the 
direct  connection  is  between  the  adoption  of  state  super- 
vision, and  especially  of  compulsory  net  valuation,  and 
the  consequent  revolt  of  the  people  which  took  the  form  of 
loose  mutual  organizations. 

Perhaps  the  term  "net  valuation"  requires  some 
explanation  at  this  point.  The  short  methods  now  used 
by  actuaries  under  legal  reserve  regulations  to  compute 
the  assets  and  liabilities  of  companies  involve  the  whole 
subject  in  mystery  to  the  uninitiated.  Yet  the  subject  is 
not  difficult  to  comprehend,  though  it  would  be  clearer 
to  the  average  mind  if  the  balance  sheet  appeared  in  full 
in  reports,  as  is  the  custom  in  many  other  countries.  To 
determine  the  financial  condition  of  a  company,  which 
has  agreed  to  pay  certain  endowments  and  insurances 
upon  the  receipt  of  certain  premiums,  first  the  future 
premium  receipts  are  discounted  to  their  present  value, 
which,  together  with  funds  in  hand,  constitute  the  re- 
sources; then  the  present  value  of  all  future  pay ments  is 
similarly  ascertained  and  added  to  the  outstanding  indebt- 
edness to  make  up  the  liabilities.  Now  it  is  evidently 
of  the  first  importance  in  any  such  computation,  what 
shall  be  the  mortality  and  interest  factors  used  in  the 
discounting.  For  the  mortality  factor  will  determine  how 


17 

long  premiums  are  to  be  paid  and  also  when  claims  must 
be  met;  the  importance  of  selecting  a  table  which  is  based 
upon  an  average  experience  can  hardly  be  overestimated. 
At  the  time  and  for  the  time,  Klizur  Wright  considered 
the  actuaries'  table,  which  combined  the  experience  of 
seventeen  leading  British  ofl&ces,  the  best.  In  selecting 
it,  however,  it  was  by  no  means  his  intention  that  a 
change  should  never  be  made;  on  the  contrary,  he  him- 
selt  at  once  began  compiling  material  for  the  construction 
of  tables  which  should  more  accurately  express  American 
experience.  There  is  also  no  doubt  that  he  would  have 
favored  the  construction  of  several  tables  to  be  used  in 
the  classification  of  risks.  The  making  of  a  "Shibboleth" 
out  of  the  actuaries'  tables,  which  have  long  ago  been  dis- 
carded in  England  for  the  later  "Healthy  Male"  tables,  was 
far  from  his  intent.  He  considered  that  an  interest  in  ex- 
cess of  what  was  thought  probable  by  other  financial 
institutions  should  not  be  assumed  in  these  calculations. 
His  selection  of  4  per  cent  was  at  the  time  by  many  con- 
sidered ultra  conservative;  events  have  proven  his  wisdom. 
But  all  of  this  might  have  been  decided  upon  without 
resulting  in  net  valuation;  for  in  the  discounts  referred 
to  in  the  foregoing  nothing  was  said  about  net  premiums 
or  about  expense  of  management.  It  is  evident  that  on 
the  assumption  of  mortality  as  per  the  table  adopted  and 
interest  at  4  per  cent,  there  would  be  a  certain  schedule 
of  rates  required  to  make  the  accounts  balance.  These 
were  called  "net  rates"  incounterdistinction  to  the  office 
premiums  which  were  called  "gross  rates."  Few  com- 
panies were  found  which  were  charging  on  any  policies 
less  premiums  than  were  required  according  to  this  net 
schedule;  in  all  such  cases  companies  were  required  to 
have  on  hand  funds  sufficient  to  made  good  the  deficit  in 


18 

resources  caused  by  inadequacy  of  premium.  It  might 
be  thought  proper  on  the  other  hand  to  allow  to  other 
companies  an  extra  credit  for  the  amount  of  premiums 
collected  by  them  in  excess  of  what  the  standard  of  valu- 
ation required;  and  this  was  actually  the  practice  with 
many  previous  to  the  adoption  of  a  state  standard;  but  it 
might  have  even  resulted  in  making  a  company  appear 
to  have  a  large  surplus  of  resources  because  charging 
large  premiums,  when  in  fact  its  actual  cash  assets  were 
nothing.  In  all  this  there  would  be  no  provision  for  ex- 
penses, which  formed  a  vexatious  and  difficult  problem. 
Elizur  Wright  hit  upon  the  happy  thought  that  what- 
ever the  companies  themselves  collected  above  the  net 
premium  required  must  be  what  they  purposed  expend- 
ing; the  excess  is  called  in  actuarial  parlance  the  "load- 
ing." Thus  by  using  the  net  premiums  only  as  the 
basis  of  the  discount  to  determine  the  resources,  he 
eliminated  the  expense  question  entirely  and  introduced 
an  uniformity  which  obtains  to  this  day.  This  method  of 
valuation  is  called  "net." 

Similar  reserve  regulations  were  soon  adopted  in  other 
States,  and  eventually  in  every  important  State  of  the 
Union.  In  some  States  the  interest  factor  was  made  4.% 
per  cent,  and  the  American  mortality  table,  constructed 
by  combining  the  experience  of  the  Mutual  Life  of  New 
York  with  that  of  the  seventeen  British  companies  repre- 
sented in  the  actuaries'  table,  was  substituted  for  the 
latter.  But  at  this  writing  the  use  of  the  actuaries'  table 
is  all  but  universal  among  insurance  departments,  New 
York  itself  having  fallen  into  line,  though  by  the  recent 
Roche  law  all  standards  are  admissible.  It  is  at  first 
blush  singular  that  a  measure  which  was  so  violently 
opposed  should  have  received  such  support  from  its  for- 


19 


mer  opponents  as  to  spread  everywhere  in  a  surprisingly 
short  time.  But  the  fact  is  that  the  larger  companies 
found  net  valuation  a  Very  good  thing  for  them.  It  gave 
to  them  an  official  certificate  of  solvency,  and  in  its  prac- 
tical workings  it  discriminated  against  small  and  espe- 
cially against  new  companies.  How  it  did  this  will  be 
evident  if  one  but  consider  the  margin  for  expenses 
allowed  by  this  system.  For  instance,  assume  that  of  a 
gross  premium  of  $25,  $20  is  the  net  premium  required  by 
the  actuaries'  table  and  4  per  cent;  this  leaves  an  uni- 
form margin  of  $5  for  expenses  each  year.  But  in  prac- 
tice, even  before  the  present  brokerage  and  bonus  system, 
it  cost  much  more  to  secure  a  policyholder  than  to  retain 
one.  In  other  words,  roughly  speaking,  it  would  have 
been  much  fairer  as  a  basis  for  net  valuation  to  have  con- 
sidered the  first  year's  premium  as  consisting  only  of 
mortality  and  expense — an  one-year  term  insurance — 
and  let  the  regular  net  premium  begin  the  next  year  at 
the  advanced  age.  For  instance,  instead  of  treating  a 
life  premium  of  $19.63  at  age  25  as  composed  of  a  net 
premium  at  age  25  of  $14.72  and  a  margin  of  $4.91,  let  it 
be  considered  the  first  year  as  consisting  merely  of  cur- 
rent mortality  and  expense  contributions  and  thereafter 
of  the  net  life  premium,  at  age  26,  $15.13  and  a  margin 
of  $4. 50.  This  distinction  may  not  seem  important,  but 
the  disregarding  the  actual  facts  concerning  expenditure 
had  the  effect  of  making  it  very  difficult  to  embark  new 
companies,  which  in  turn  resulted  in  leaving  the  field 
clear  for  the  operations  of  the  established  ones.  Really, 
it  had  been  very  embarrassing  to  them  at  times  to  have 
some  upstart  of  a  new  concern  cut  rates  or  extend  supe- 
rior advantages.  Now,  when  such  companies  entered 
the  field,  conformity  to  legal  reserve  regulations   pre- 


20 

vented  their  offering  better  terms  than  the  old,  and,  since 
the  margin  on  the  first  year's  premium  did  not  equal  the 
cost  of  obtaining  that  premium,  the  volume  of  business 
they  could  acquire  was  limited.  But  to  make  assurance 
doubly  .sure  the  companies  obtained  in  almost  every  State, 
besides  legal  reserve  legislation,  the  passage  of  acts  pro- 
hibiting the  organization  of  regular  mutual  companies. 

Then  they  rubbed  their  hands  and  prepared  to  monop- 
olize the  field;  but  not  for  long.  In  addition  to  all  their 
other  shortcomings,  which  were  not  few,  the  regular 
companies  steadfastly  refused  to  furnish  the  people  insur- 
ance at  its  current  cost.  In  this  they  followed  the  cus- 
tom of  English  companies,  obhvious  to  the  fact  that  no 
such  gulf  separated  the  well-to-do  and  laboring  classes 
here  as  there.  The  lowest  priced  policy  offered  was  the 
whole  life.  It  was  a  sign  of  what  the  people  wished  in 
insurance  that  the  so-called  "note  plan"  was  so  popular. 
This  consisted  merely  in  giving  notes  for  a  considerable 
part  of  the  premiums,  payable  only  out  of  proceeds  of 
the  policy  and  expected  to  be  taken  care  of  by  dividends. 
The  sole  attraction  was  the  cheapness,  the  amount  of  pro- 
tection furnished.  This  desire  for  cheapness  was  also 
fostered  by  the  harsh  surrender  conditions  which  for- 
feited so  large  a  part  of  what  was  paid  beyond  the  cur- 
rent cost.  All  in  all,  a  very  large  part  of  the  public  could 
afford  to  buy  nothing  but  protection,  and  a  yet  larger 
part  preferred  to  make  their  own  investments  where  the 
lapse  of  an  insurance  policy  would  not  affect  them.  But 
how  was  this  to  be  done? 

The  prototype  of  the  American  assessment  company 
already  existed  in  the  English  friendly  societies.  To  be 
sure,  these  societies  dealt  with  much  smaller  amounts 
than  would  answer  in  America,  amounts  suitable  to  the 


21 

small  incomes  and  modest  ambitions  of  their  clientage, 
but  they  already  had  all  the  phases  both  of  plans  of 
insurance  and  of  governmental  systems  which  now  mark 
American  assessment  organizations.  Friendly  societies 
of  the  same  sort  had  already  become  strong  in  America, 
as  we  have  seen,  but  insurance  was  discarded.  With 
the  exception  of  the  Knights  of  Pythias,  which  have 
incorporated  their  insurance  feature  into  the  fraternity 
itself  as  an  "endowment  rank,"  none  of  the  old  lodge 
organizations  has  adopted  an  insurance  feature  directly. 
But  not  only  do  swarms  of  insurance  organizations  thrive 
under  the  aegis  of  their  names,  but  the  whole  system  of 
co-operative  insurance  is  the  result  of  just  such  brotherly 
organization  for  mutual  protection.  It  was  at  first  the 
simplest  of  crude  forms,  the  mere  paying  of  a  dollar 
every  time  a  brother  died;  but  it  furnished  protection 
which  was  needed  and  it  cost  very  much  less  than  regu- 
lar insurance.  Thus  it  started  out  in  the  sixties,  after 
the  war,  when  the  success  of  abolition,  but  lately  deemed 
so  chimerical,  made  any  folly  appear  practical.  Men 
were  drawn  together  as  never  before;  they  felt  that  these 
were  indeed  great  days.  The  country  after  its  bloody 
baptism  was  prosperous;  the  presence  of  widows  and 
orphans  on  every  hand  was  a  constant  object  lesson  on 
the  possibilities  of  every  household.  When  the  Ancient 
Order  of  United  Workmen  was  launched  in  1868  as  a 
labor  union,  giving  to  its  members  also  the  advantages 
of  a  weekly  allowance  during  illness  and  a  small  life 
insurance,  it  found  the  people  hungrier  for  the  insurance 
than  for  the  labor  union.  It  thrived,  but  not  in  the  way 
which  its  blacksmith  founder  in  the  little  city  of  Mead- 
ville.  Pa.,  anticipated.  It  levied  equal  assessments  at  all 
ages  and  continues  to  do  so  today.     It  is  divided  into 


22 

thirty-one  jurisdictions,  each  standing  on  its  own  bottom 
in  insurance  responsibilities.  On  January  i,  1893,  there 
were  308,575  members,  carrying  over  $617,000,000  insur- 
ance. During  the  previous  year  $6,015,020  was  paid  out 
in  death  losses,  which  called  for  an  average  assessment 
of  but  $9.84  on  each  member.  The  expenses  were  but 
$462,514,  equal  to  $1.50  a  member,  or  about  75  cents  per 
$1,000  insurance.  Yet  the  regular  companies  find  it  nec- 
essary to  use  over  $10  per  $1,000,  the  larger  part  of 
which  goes  to  the  agent  for  the  arduous  labor — and  it  is 
arduous — of  convincing  the  people,  not  that  they  want  in- 
surance, but  that  they  want  the  kind  he  has  to  sell.  The 
policy  of  the  earlier  assessment  companies  at  least  seems 
to  have  been  to  furnish  what  the  people  wanted  to  buy. 
To  recapitulate,  then,  the  assessment  companies  came 
into  existence  after  the  war  in  response  to  a  general  de- 
mand on  the  part  of  the  people  for  life  insurance  on 
cheap,  current-cost  plans.  That  demand  largely  arose 
from  the  general  sentiment  that  to  pay  companies  more 
than  current  cost  was  to  part  with  the  title  to  your 
money,  but  partly  from  the  fact  that  many  people  had  to 
have  insurance  at  current  cost  or  go  without.  The  reg- 
ular companies,  secure  in  the  protection  of  the  new  legal 
reserve  requirements,  refused  to  accommodate  the  people. 
By  reason  of  these  same  legal  reserve  requirements  and 
of  statutory  prohibition  of  the  organization  of  new  com- 
panies, the  demand  for  cheap  insurance  called  into  being 
mutual  organizations  of  a  popular  character  into  which 
the  people  flocked.  The  movement  was  spontaneous  and 
self- directed;  and,  by  their  foolish  scoffing,  the  actuaries, 
who  should  have  guided  such  movements  aright,  es- 
tranged the  people  from  themselves  and  the  companies,  of 
which  they  came  to  be  considered  the  hireling  advocates. 


23 


A  BRIEF  HISTORICAL  REVIEW. 

The  organization  of  the  Ancient  Order  of  United  Work- 
men in  1867,  and  its  success  during  the  following  years, 
caused  a  large  number  of  similar  organizations  to  spring 
up,  first  in  Pennsylvania  and  then  wherever  the  new  and 
flourishing  order  penetrated.  The  form  and  plans  of  the 
society  were  modeled  after  those  of  the  two  great  Affili- 
ated Friendly  Societies  of  Great  Britain,  the  Foresters  and 
Manchester  Unity  of  Odd  Fellows.  From  these  the  sys- 
tem of  collecting  funds  to  meet  death-claim  obligations 
was  also  adopted.  It  was  not  the  new  and  improved 
j^ystem,  that  of  scientifically  constructed  rates,  which  the 
two  societies  were  endeavoring  to  put  into  effect  in  lieu  of 
the  old.  The  American  society  instead  adopted  the  sys- 
tem of  "levies"  or  assessments  equal  at  all  ages,  which  was 
at  that  time  being  generally  discarded  by  the  old  societies 
which  the  new  order  was  copying.  In  this  connection  it 
is  proper  to  say  again,  however,  that  in  the  mind  of  the 
founder  insurance  was  secondary  and  a  labor  union  the 
most  important  thing  to  be  accomplished.  He  was  a  lit- 
tle ahead  of  the  times  in  that  regard;  the  Knights  of 
Labor  and  the  Federation  were  not  to  come  until  later. 
But  the  times  were  ripe  for  a  great  popular  insurance 
society.  The  people  had  been  educated  to  a  due  appre- 
ciation of  the  benefits  of  insurance;  their  confidence  in 
both  the  stability  and  good  intention  of  the  regular  com- 
panies was  about  to  be  severely  shaken;  they  already 
knew  something   about  the  hardships  of  forfeiture,  and 


24 

about  the  wide  difference  between  current  cost  and  cur- 
rent price.  The  operations  of  the  new  order,  and  its  very 
low  death-rate  during  early  years,  gave  an  exaggerated 
object  lesson  in  this  regard.  And  so  it  flourished.  For 
death  benefits,  the  order  adopted  the  new,  modified  regu- 
lation of  the  Manchester  Unity,  grouping  each  grand 
jurisdiction  by  itself;  commonly  each  jurisdiction  com- 
prises a  State.  This  practice  results  in  the  general  com- 
pany for  mortality  purposes  being  split  up  into  a  number 
of  small  companies  with  widely  different  experiences. 
For  instance, the  mortality  in  Pennsylvania,  where  organ- 
ization was  first  effected,  was  in  1892  but  12.65  P^r 
1,000,  and  in  Tennessee,  which  was  organized  in  1877, 
21.07.  In  Kentucky,  which  was  organized  in  1873,  the 
mortality  was  17-95  per  1,000,  and  in  Iowa,  organized  in 
the  same  year,  only  6.27. 

As  we  have  seen,  the  order  was  organized  really  as  a 
society  for  other  purposes,  to  which,  conformable  with  a 
common  English  practice,  insurance  was  added  as  an  at- 
tractive incident.  The  form  of  organization,  the  absence 
of  fixed  premiums,  and  the  fact  of  not  forming  a  reserv^e 
at  all,  together  with  the  comparatively  obscure  begin- 
ning of  the  fraternity,  sufficed  to  place  it  outside  the 
terms  of  regulative  statutes.  Its  success  as  an  insurance 
organization,  however,  soon  attracted  attention  to  it  and 
its  methods,  and  a  flood  of  small,  and  often  wholly  unre- 
liable organizations,  which  had  nothing  in  common  with 
the  order  except  its  assessment  system  of  insurance,  soon 
overran  Pennsylvania  and  other  States.  Their  methods 
were  lax  and  often  fraudulent,  and,  great  as  was  the  mor- 
tality among  their  members,  the  mortality  of  the  societies 
themselves  almost  exceeded  it.  The  infamous  practice  of 
insuring  old,  infirm  or  even  dying  persons  as  a  specula- 


OF 

25  ^•"^^FQRMVh. 


tion,  often  by  persons  not  even  remotely  interested  in 
their  lives,  grew  to  scandalous  proportions.  At  this 
agents  and  even  ofl&cials  connived  until  the  arm  of  the  law 
had  to  be  called  in  to  put  an  end  to  practices  so  criminal 
and  dangerous. 

Meanwhile,  however,  despite  these  unfortunate  excres- 
cences the  progress  of  the  beneficary  orders  continued  to 
be  phenomenal.  They  were  accepted  with  favor  in  all 
parts  of  the  country,  not  only  by  persons  of  limited  means 
or  of  the  wage -earning  classes,  but  by  well-to-do  persons 
also,  who  considered  the  treatment  accorded  them  by 
regular  companies  unreasonable,  and  the  premiums 
charged  as  exactions  not  to  be  borne.  Among  larger  so- 
cieties the  Knights  of  Honor  in  1873  followed  next  in  or- 
der of  organization,  with  headquarters  at  St.  lyouis.  Their 
plan,  which  now  calls  for  an  assessment  graded  according 
to  age  at  entry,  was  at  first  analogous  to  that  of  the  Work- 
men. In  1877  the  Royal  Arcanum  was  organized  at  Bos- 
ton, and  adopted  the  idea  of  graded  assessments  accord- 
ing to  age  at  entry.  Both  of  these  societies  have  grown 
to  great  size,  and  have  been  and  continue  to  be  popular. 
The  Knights  of  Honor  on  January  i,  1893,  had  a  mem- 
bership of  127,073,  and  $241,045,000  insurance  in  force. 
The  Royal  Arcanum  at  the  same  time  had  a  membershid 
of  137,189  and  $401,085,500  insurance  in  force.  Two 
fraternities  of  more  recent  date,  and  operating  along  very 
similar  lines,  have  achieved  considerable  success.  These 
are  the  Royal  L<eague  and  the  Modern  Woodmen.  The 
Royal  I/Cague  was  organized  in  Chicago,  and  has  only 
very  recently  extended  into  the  smaller  towns.  The 
Modern  Woodmen  was  organized  at  Lyons,  la.,  and  now 
has  headquarters  at  Fulton,  111.  It  does  not  operate  in 
the  larger  cities,  and  proceeds  on  the  theory  that  in  such 


26 

the  mortality  is  higher  than  in  the  smaller  towns  and 
open  country.  How  true  this  theory  is  cannot  yet  be 
certainly  ascertained;  but  the  fact  that,  while  both  socie- 
ties are  experiencing  a  very  low  death  rate,  the  Royal 
lycague  has  the  best  record  so  far  indicates  that  there 
may  be  something  erroneous  about  the  theory.  The 
National  Union,  which  was  organized  in  1881,  was  the 
first  of  these  societies  to  recognize  the  fact  that  there  is  an 
increasing  risk  with  increasing  age  without  regard  to  the 
age  at  entry.  It  adopted  a  plan  which  provided  for 
assessments  on  a  sliding  scale,  which  will  be  fully  con- 
sidered hereafter. 

The  order  of  Odd  Fellows  had  been  long  before  trans- 
planted to  this  country,  where  it  had  thrived  mightily. 
But  when  it  came  there  was  no  demand  for  insurance  such 
as  was  furnished  in  England,  and  it  therefore  confined 
its  benefits  to  quasi-charitable  assistance  of  distressed 
brethren.  It  was  not  then  possible  to  graft  the  business 
of  insurance  upon  the  established  fraternities,  including 
the  Masonic  order,  all  of  which  were  performing  import- 
ant oflSces  to  the  satisfaction  of  their  members.  Theirs, 
however,  were  names  to  conjure  with  and  organizations 
sprang  up  on  all  sides  which  borrowed  the  names  of  these 
orders  and  usually  at  first  confined  their  operations  to  mem- 
bers of  them.  Most  prominent  among  such  societies  are 
the  Northwestern  Masonic  Aid  Association,  organized  in 
1874,  and  the  Covenant  Mutual  Benefit  Association, 
organized  in  1887,  among  the  Odd  Fellows.  In  only  one 
case,  that  of  the  Endowment  Rank  of  the  Knights  of 
Pythias,  was  the  society  recognized  by  the  order  and  in- 
corporated into  it.  These  societies  have,  as  a  whole, 
proved  very  popular.  Their  plans  were  usually  originally 
flat  assessment,  «arly  modified,  however,  by  the  adoption 


27 

of  graded  assessment  plans  on  various  bases.  Each  of  the 
three  institutions  named  have  since  adopted  plans  which 
more  nearly  accord  with  the  scientific  facts  of  their  exper- 
ience. These  plans  have  been  well  received  by  the  public, 
and  will  be  fully  reviewed  in  these  papers. 

Trade  combinations  for  life  insurance  were  very  com- 
mon in  England  from  early  in  the  century.  Next  to  the 
fraternal  tie,  the  bond  of  union  between  persons  follow- 
ing the  same  avocation  was  tound  a  good  basis  upon 
which  to  build  a  mutually  protective  society.  In  this 
country,  advantage  was  soon  taken  of  the  community  of 
sentiment  and  the  fraternal  feeling  among  fellow-crafts- 
men to  build  up  insurance  organizations.  The  great 
railway-employe  unions,  though  primarily  for  ordinary 
trade  union  purposes,  incorporated  life  insurance  and 
accident  insurance  into  their  plan,  in  most  cases  making 
it  compulsory  upon  all  members.  Among  these  are  the 
orders  of  Railway  Conductors,  I^ocomotive  Engineers, 
Firemen  and  Switchmen.  In  most  cases  among  societies 
of  this  sort  the  funds  are  collected  by  the  system  of  level 
assessments  at  all  ages.  The  trades  are  not  alone  in  fur- 
nishing a  bond  of  union  for  such  organizations.  Several 
of  the  stock  and  produce  exchanges  have  a  system  of  mutual 
life  insurance  on  the  level  assessment  plan.  There  are  al?o 
a  number  of  weaklings  and  some  stronger  associations 
among  the  professions  and  mercantile  trades.  Among  the 
better  known  are  the  Jewelers'  I^eague  of  New  York  and 
the  Northwestern  Traveling  Men's  Association  of  Chi- 
cago. Among  workingmen,  and  when  confined  to  one 
institution  such  as  a  single  exchange,  such  organizations 
have  commonly  arisen  spontaneously;  in  the  case  of  soci- 
eties soliciting  the  patronage  of  professional  or  business 
men,  organization   has  usually  been   effected  by  persons 


28 

who  expect  to  profit  as  managers  and  who  use  the  trade 
name  as  a  bait.  An  especially  flagrant  example  of  this 
was  seen  in  a  Chicago  society  with  a  high-sounding 
title,  which  had  a  department  for  each  of  several  business 
and  professional  occupations.  It  caught  many  hundreds 
of  the  best  men  in  Chicago  although  it  was  altogether  a 
sordid  affair,  never  paying  its  claims  in  full,  exceeding 
every  day  its  legal  powers  and  merely  accomplishing  the 
rather  doubtful  good  of  furnishing  the  managers  a  living 
until  tardy  justice  overtook  it  and  it  was  dissolved. 

The  connection  between  bankers  is  probablj^  as  close 
as  between  those  of  any  other  occupation  and  cer- 
tainly no  others  have  a  higher  opinion  of  their  finan- 
cial and  managerial  ability.  It  was  but  natural,  there- 
fore, that  in  good  time  it  should  occur  to  some  one  to 
appeal  to  that  common  sentiment  and  that  common  good 
opinion  by  naming  a  society  "The  Bankers"  and  devis- 
ing means  to  reach  the  bankers  and  enlist  their  co-oper- 
ation. This  was  the  happy  thought  of  the  organizer  of 
the  Bankers'  Life  Association,  of  Des  Moines,  which,  in 
addition  to  the  name,  made  arrangements  to  do  all  collecting 
through  banks  which  it  should  appoint  banks  of  deposit. 
The  scheme  was  favorably  received  and  the  very  next  year 
saw  a  society,  similarly  organized  and  with  the  same 
name,  begin  business  in  St.  Paul.  The  two  institutions 
make  use  of  a  peculiar  sort  of  rates  of  assessment  graded 
according  to  age  at  entry,  which  will  be  thoroughly 
analyzed  hereafter.  In  this  they  have  been  followed  by 
many  imitators,  for  they  have  both  secured  a  handsome 
patronage  and  accumulated  a  considerable  reserve  fund. 
The  managers,  however,  are,  in  at  least  one  of  them,  so 
far  from  being  bankers  that  so  late  as  1893  they  seemed 
to  be  ignorant  that  a  note  must  be  presented  at  the  place 


29 

of  payment  on  the  due  date  in  order  to  set  up   default  as 
an  invalidation  of  the  contract. 

Two  things  became  apparent  as  these  societies  contin- 
ued to  multiply;  first,  that  in  order  to  command  general 
confidence  a  society  must  accumulate  a  considerable 
fund;  second,  that  in  the  management  of  these  societies 
under  the  proxy  system  large  profits  could  be  made  by  : 
the  managers.  Both  of  these  facts  became  understood  in 
the  last  of  the  seventies,  and  the  result  was  the  founding 
of  several  organizations  as  business  enterprises  without 
sailing  under  fraternal,  trade  or  other  pretenses.  These 
institutions  are  now  distinguished  by  the  title  "business 
associations,"  in  which,  however,  usage  has  caused  all 
the  societies  except  the  fraternities  to  be  included. 
Among  the  more  prominent  of  these  are  the  Massachu- 
setts Benefit  Association,  of  Boston;  the  Fidelity  Mutual 
lyife  Association,  of  Philadelphia;  the  Mutual  Reserve 
Fund  Life  Association,  of  New  York;  the  National  Life 
Association,  of  Hartford,  and  the  Chicago  Guaranty 
Fund  Life  Insurance  Society.  Each  of  these  societies 
has  now  accumulated  a  large  reserve  fund  under  different 
names  and,  whatever  was  the  original  practice  with  each, 
they  all  now  charge  premiums  considerably  in  excess  of 
current  needs.  The  popularity  and  the  consequent 
profits  to  managers  of  these  low-priced  plans  were  so 
manifest  that  the  Hartford  Life  and  Annuity  Company, 
a  regular  stock-company,  gave  up  its  regular  business  to 
conduct  an  assessment  business  on  a  guarantee-fund 
plan,  under  which  the  company  incurs  no  obligation  be- 
yond that  of  trustee. 

The  original  idea  of  assessment  managers  was,  as  has 
been  seen,  to  avoid  accumulating  any  money  in  reserve; 
and  it  was  not  at  first  conceived  to  attempt   carrjnng   on 


an  endowment  business  on  the  assessment  plan.  The 
earlier  advocates  of  even  level  assessment  plans  for  life 
insurance  would  have  stood  aghast  at  the  proposition  of 
paying  endowments  without  accumulating  funds.  But 
the  apparent  success  of  the  plan  of  level  assessments  led 
to  all  sorts  of  vagaries.  The  laws  relating  to  assessment 
companies  were  permissive  in  character  for  the  most  part 
and  did  not  permit  of  the  transaction  of  an  endowment 
business.  But  the  fraternities  have  always,  with  singu- 
lar blindness  to  their  own  interests,  sought  to  escape  any 
sort  of  legal  regulation  and  in  many  States  have  suc- 
ceeded. Consequently,  the  name  of  fraternity  became  a 
protection  for  all  sorts  of  wild  and  fraudulent  schemes. 
Among  the  better  known  of  these  were  the  orders  of  the 
Iron  Hall  and  of  Tonti,both  of  which  have  within  a  year 
or  so  gone  into  receivers'  hands.  These  organizations 
usually  give  no  life  insurance,  though  they  often  grant 
sick  benefits  or  health  insurance;  they  are  considered 
here  only  because  they  sail  under  the  name  of  fraternities 
and  also  because  they  set  up  certain  claims  to  analogy 
with  life  insurance  societies. 

Yet  further  removed  are  the  infamous  bond  companies, 
which  have  but  recently  been  denied  the  use  of  the  mails 
because  adjudged  gambling  institutions.  If  it  were  not 
that  they  in  their  arguments  claim  to  operate  after  the 
manner  of  insurance  societies,  "killing  a  bond"  accord- 
ing to  their  jargon  * 'instead  of  a  man,"  they  would  cer- 
tainly not  receive  attention  in  this  series  of  papers;  but 
we  shall  be  compelled  to  class  them  as  they  class  them- 
selves. In  the  proper  order,  therefore,  their  mode  of 
operation  will  be  fully  analyzed. 

In  recent  years  certain  of  the  stronger  and  better  soci- 
eties have  shown  a  disposition  to  enter  into  the  endowment 


31 

or  investment  insurance  business  on  plans  which  call  for 
accumulation  of  a  member's  own  funds  and  which  are 
more  or  less  scientific  and  feasible.  This  latest  phase  of 
assessment  insurance  is  very  interesting  and  will  demand 
no  little  notice  as  an  important  indication  of  the  future 
movement  of  co-operative  insurance.  At  present  the 
principal  difficulties  to  be  surmounted  are  the  legal  dis- 
abilities under  which  the  societies  are  laboring  and  the 
fact  that  many  of  their  managers  have  not  progressed 
sufficiently  to  perceive  their  own  disadvantages;  as  wit- 
ness their  miscomprehension  of  Illinois  Senate  Bill  No. 
lOO  in  1893,  ^^^  their  opposition  to  it,  although  it  would 
have  granted  them  all  possible  privileges  without  sad- 
dling a  single  onerous  burden  upon  any  honestly  con- 
ducted society. 


32 


THE  EVOLUTION  OF  ASSESSMENT  PLANS. 

The  first  societies  made  use  of  tke  mode  of  equal  levies 
or  asssessments  for  paying  death  losses  without  regard  to 
the  ages  of  members.  The  levies  were  made  after  -the 
deaths  occurred  and  the  amount  to  be  paid  each  benefici- 
ary directly  depended  upon  the  amount  secured  by  such 
an  assessment  of  the  members.  After  a  time,  when  the 
societies  had  grown  to  such  size  that  each  assessment 
yielded  a  large  sum  of  money,  it  was  found  advisable  to 
limit  the  principal  sum  of  the  certificates.  Should  that 
sum,  however,  not  be  realized  from  one  assessment,  only 
the  sum  actually  so  realized  was  recoverable.  For  many 
years,  this  was  considered  the  distinguishing  feature  of 
assessmentism  and  it  gave  the  name  assessment  to  the 
system.  Immunity  from  the  insurance  laws  was  also 
secured i  because  of  the  fact  that  the  mutual  agreements 
were  in  no  sense  definite  contracts,  but  merely  loose  agree- 
ments for  mutual  benefit,  almost  eleemosynary  in  form. 
In  those  days,  a  definition  of  assessmentism  as  a  plan  of 
insurance  without  guaranteed  premiums,  so  named 
because  the  right  to  assess  in  excess  of  the  stipulated 
premium  was  retained,  would  have  been  scorned  by  the 
friends  of  the  system.  Even  at  this  day,  the  fraternal 
societies  have  recently  sent  out  a  manifesto  denying  that 
what  they  furnish  is  insurance  at  all  and  asserting  the 
vSemi-charitable  character  of  their  transactions.  Not  even 
they,  however,  as  a  class,  whatever  may  be  the  practice 
or  principles  of  individual  societies,  denounce  all  plans 
other  than  that  of  equal  assessment.     It  will  be  seen  that 


33 

nearly  all  of  the  more  recently  organized  societies  have 
adopted  methods  of  apportioning  death  losses  which,  at 
least,  greatly  modify  the  original  system. 

It  is  really  singular  that  it  should  have  been  used  at  all 
in  this  country.  It  had  already  received  a  thorough  trial 
abroad,  and  especially  in  Great  Britain,  and  was  being 
discarded  as  rapidly  as  possible.  But  the  organizers  oi 
the  early  societies  here  did  not  know  much  of  that  expert 
ience  and  often  cared  nothing  about  it,  anyhow.  The 
contrast  between  the  premiums  required  by  the  regular 
companies  and  their  mortality  rate  per  thousand  was  so 
marked  that  there  seemed  to  be  no  necessity  to  go  beyond 
that  in  order  to  successfully  compete.  This  discrepancy, 
which  required  a  learned  argument  to  explain,  was  the 
strongest  lever  to  move  people  to  leave  the  old  companies 
for  the  new;  its  strength  and  appositeness  would  have 
been  considerably  diminished,  had  the  mind«  of  prospec- 
tive patrons  been  diverted  by  a  deviation  from  the  plan 
which  this  low  average  death  rate  indicated,  that  of  level 
assessments.  Moreover,  even  when  convinced  cf  its  pro- 
priety and  ultimate  necessity,  managers  are  slow  to 
depart  from  the  simplest  plans,  except  under  the  lash  of 
necessity  because  of  competition.  Such  necessity  did 
not  exist  when  the  new  societies  first  appeared.  The  por-' 
tion  of  the  public  who  merely  desired  protection  was 
sufficiently  grateful  for  the  opportunity  to  purchase  that 
protection  at  so  greatly  reduced  prices  that  it  was  not  dis- 
posed to  ask  anything  better  or  cheaper,  however  mani- 
festly unfair  it  might  seem  that  a  youth  should  pay  as 
much  as  an  old  man.  The, point  was,  that  if  these  low 
prices  yet  included  an  element  of  charity,  the  young  could 
well  afibrd  to  be  charitable,  especially  as  nowhere  could 
they  obtain  insurance  at  so  small  an  outlay. 


31 


So  long,  therefore,  as  these  societies  had  no  competition 
other  than  that  of  regular  companies  and  level  premium 
plans,  they  drew  persons  of  all  ages  into  them,  and  rather 
the  young  and  inconsiderate  than  the  older  and  more 
prudent.  Thus  there  was  a  tendency  to  offset  the  inevi- 
table increase  of  death  losses,  both  because  of  increasing 
average  age  and  of  wearing  off  of  fresh  medical  selection. 
But  there  was,  notwithstanding  this,  an  increase  in  cost 
which,  together  with  the  continual  arguments  of  solicitors 
of  regular  companies,  impressed  the  public  in  large  part 
that  the  inequity  of  charging  persons  of  all  ages  the  same 
premium  would  be  ultimately  fatal  to  the  plan.  Without 
stopping  to  consider  whether  they  were  right  in  coming 
to  this  decision,  which  will  be  fully  discussed  in  another 
paper,  it  is  enough  to  say  at  this  point  that  in  the  nature 
of  things  it  was  clear  that  societies  would  be  organized 
which  would  apportion  the  death  losses  among  their 
members  according  to  certain  ratios  fixed  upon  entrance, 
instead  of  by  the  method  of  equal  levies.  The  modes  of 
fixing  these  ratios  deserve  mention  here;  they  were  for 
the  most  part  intended  to  follow  more  or  less  crudely  the 
proportional  differences  by  the  mortality  tables  or  by  the 
premium  tables  of  companies.  The  simplest  method  was 
by  a  division  into  classes,  those  between  certain  ages  go- 
ing into  one  class,  those  between  certain  other  ages  going 
into  another;  in  each  class  the  plan  of  level  assessments 
was  applied  and  in  most  cases  the  mortality  of  each  class 
was  kept  separately.  Another,  and  a  very  common  plan, 
arose  from  an  utter  miscomprehension  of  the  meaning  of 
the  mortality  tables,  which  has  not  yet  been  dispelled; 
namely,  that  the  mortality  rate  per  cent  by  these  tables 
at  a  certain  age  means  that  the  risk  upon  the  life  of  a 
person  insuring  at  that  age  will  remain  at  that  figure 


35 

throughout  his  lifetime.  The  figures  given  only  cover 
the  risk  of  dying  that  year.  The  risk  of  dying  the  next 
year  is  according  to  the  figures  at  the  next  age,  and  the 
rates  form  an  ascending  scale  of  risks.  The  regular  com- 
panies all  recognize  this  and  charge  for  insurance  as  by 
this  sliding  scale,  though  that  fact  is  veiled  by  the  sys- 
tem of  equalizing  rates  into  level  premiums,  exceeding 
the  cost  in  the  first  years  and  less  than  the  cost  in  the 
later  years.  The  refusal  of  the  regular  companies  as  a 
class  to  recognize  the  insured's  property  in  his  overpay- 
ment also  confirmed  the  erroneous  impression  that  this 
contention  was  merely  a  pretense.  Consequently,  these 
persons  now  understand  the  term  natural  premium  to 
mean  a  level  premium,  instead  of  one  which  advances 
from  year  to  year.  Another  and  very  peculiar  and  purely 
arbitrary  mode  of  fixing  the  ratio  by  which  death  losses 
are  apportioned  was  adopted  by  the  Bankers'  I^ife  Associ- 
ation of  Des  Moines  and  its  imitators.  It  consists  in  treat- 
ing the  years  of  one's  age  as  a  basis  for  apportion- 
ment. The  contribution  to  the  guarantee  fund  is  one 
dollar  for  each  year  of  one's  age  on  each  certificate  and 
the  losses  are  assessed  as  a  percentage  upon  this  contri- 
bution. 

In  practice  the  general  plan  of  assessing  according  to 
age  at  entry  proved  a  severe  competitor  against  the  old 
plan.  It  cut  both  ways,  by  giving  superior  inducements  to 
the  young  and  not  so  favorable  to  the  old.  This  had  a  ten- 
dency to  increase  the  average  age  oflhe  membership  of  the 
societies  using  the  plan  of  level  assessments  much  more 
rapidly  than  the  competition  of  the  regular  companies 
with  level  premium  policies  could  ever  have  done.  Be- 
sides, the  new  plan  had  the  advantage  of  seeming  fairer 
and  more  reasonable  than  the  old,  as  well  as  more  likely 


to  prove  permanent.  Of  course,  the  further  one  gets  from 
the  age  at  entry,  when  only  the  apportionment  is  really 
fair,  if  ever,  the  more  unfair  it  becomes.  But  this  is  not 
apparent  at  first  sight  to  the  inexperienced  in  such  matters 
and  requires  a  deal  of  explanation.  For  the  purposes  of 
competition  it  was  enough  that  it  seemed  fair.  Although 
the  eleemosynary  quality  would  seem  to  be  absent,  the 
fraternities  are  now  for  most  part  employing  this  method 
of  assessment. 

Of  course,  this  could  not  go  on  forever  without  many 
people  becoming  aware  of  the  misapplication  of  the  mortal- 
ity rates  per  cent.  The  introduction,  also,  of  the  natural 
premium  plan,  with  premiums  increasing  annually,  by 
the  eminent  actuary  Sheppard  Homans,  was  also  an  ele- 
ment in  enlightening  men,  although  he  has  been  faint- 
hearted enough  to  practically  withdraw  it,  so  far  as  its 
being  a  current  insurance  at  cost  plan  is  concerned.  He 
always  disfigured  it  by  the  addition  of  a  reserve- deposit 
element,  which  now  becomes  a  permanent  reserve  element 
to  equalize  the  premium  for  a  long  term  of  years.  This 
constitutes  an  abandonment  of  the  original  idea.  Assess- 
ment organizers  were  bolder  and  more  consistent.  There 
are  now  a  number  of  excellent  organizations  offering  insur- 
ance at  current  cost  on  the  advancing  rate  plan  and  yet 
more  which  apportion  all  their  losses  by  that  plan, 
though  they  equalize  their  premiums.  The  best  example 
of  the  pure  natural  premium  society  is  the  National 
Union,  a  fraternity  which  uses  the  sliding  scale  system  of 
assessment  and  which  has  achieved  a  high  repute  and  a 
large  growth. 

The  introduction  of  the  safety  fund  idea  into  the  assess- 
ment societies  has  borne  fruit  of  several  kinds.  The 
earliest  system  not  only  did  not  recognize   the  need   of 


37 

such  a  fund,  but  also  collected  nothing  in  advance  of  the 
deaths  for  which  assessments  were  levied.  Because  of 
this  unbusiness-like  feature,  the  plan  was  derisively  called 
"hat-passing."  This  idea  was  early  abandoned  and  there 
have  gradually  grown  up  a  variety  of  systems  involving 
the  accumulation  of  funds.  In  some  of  the  simpler  forms, 
these  arrangements  allow  of  the  withdrawal  of  such  de- 
posits by  the  insured  upon  discontinuance  or  otherwise. 
Several  others,  which  do  not  allow  this,  pay  the  sum  of 
the  deposits  in  addition  to  the  face  of  the  certificates  at 
death.  But  not  many  do  this,  and,  generally  speaking, 
the  safety  fund  systems  are  not  wholly  consistent  with 
the  idea  of  current  cost  insurance.  Many  of  them  are 
wide  departures  from  that  idea  and  aim  to  reward  persist- 
ent members  at  the  cost  of  discontinuing  members.  For- 
feitures are  often  more  complete  and  quite  as  serious  as  in 
the  must  unmerciful  of  the  regular  companies  which  they 
criticise.  One  society  is  endeavoring  to  establish  the 
position  that  there  is  a  gain  from  discontinuances  which 
may  properly  be  discounted  in  making  rates,  which  is  a 
dangerous  step  beyond  where  any  misguided  regular  com- 
pany has  dared  to  lead. 

In  almost  all  of  these  societies  which  have  highly 
evolved  plans  of  insurance  to  present,  the  idea  of  asseSvS- 
ing  losses  upon  the  ascending  scale  is  accepted,  though 
it  is  often  carefully  concealed  from  the  patrons  of  the  so- 
cieties. This  concealment  is  effected  by  exacting  a 
premium  considerably  in  excess  of  current  cost  for  a  time 
and  not  advancing  it  for  some  years.  The  fact  that  it 
has  not  been  advanced  for  several  years  is  often  brought 
forward  as  an  evidence  of  its  adequacy  as  a  level  premium, 
although  investigation  would  prove  that  no  adequate 
reserve  was  in  hand  to  supplement  the  premiums- 


38 


THE  PLAN  OF  LEVEL  ASSESSMENTS  AT  ALL 

AGES. 

The  mortality  in  a  nation  or  city  per  thousand  inhabi- 
tants commonly  does  not  vary  greatly  from  year  to  year. 
Any  variation  is  also  as  likely  to  be  in  the  direction  of  a 
lower  rate  as  of  a  higher.  There  is  such  a  balance 
between  the  increasing  age  of  the  inhabitants  and  the 
consequently  greater  mortality  on  the  one  side  and  the 
birth  and  immigration  rate  and  the  consequently  dimin- 
ished mortality  on  the  other,  that  a  certain  reasonable 
equilibrium  is  thus  established.  The  same  thing  is  also 
observable,  though  to  a  less  degree,  in  insurance  com- 
panies which  have  been  in  existence  long  enough  to  in- 
troduce a  similar  equilibrium.  It  means  that  the  propor- 
tion of  lives  at  different  ages  does  not  appreciably  differ 
from  year  to  year. 

It  is  the  idea  of  the  friends  of  the  level  assessment  plan 
that  when  this  condition  is  once  attained  there  would  be 
no  further  increase  in  the  mortality  rate  per  cent,  which 
is  the  measure  of  cost  to  the  members.  They  concede, 
for  the  most  part,  that  there  will  in  all  cases  be  a  gradual 
increase  of  the  mortality  rate  per  cent  during  the  earlier 
years  of  any  society,  owing  both  to  the  wearing  off  of  the 
fresh  medical  selection  and  to  the  unequal  distribution 
of  lives  at  the  different  ages,  making  the  average  age  of 
the  members  lower  than  one  can  hope  to  maintain.  But 
when  this  period  of  newness  is  passed  and  the  advantage 
lost,  they  contend  that  a  stage  is  reached  when  the  dis- 


39 

tribution  of  lives  upon  the  scale  of  ages  is  normal,  when 
the  death-rate  per  cent  may  be  expected  to  remain  more 
nearly  uniform  from  year  to  year,  when  the  average  age 
may  be  maintained  at  about  the  same  point  through  the 
admission  of  ''new  blood,"  as  they  call  fresh  lives.  When 
this  stage  is  reached,  they  assert  that,  if  there  be  good 
management  and  an  active  solicitation  of  new  insurances, 
there  is  no  reason  why  there  should  be  any  further  in- 
crease of  the  mortality  rate  per  cent,  or,  what  is  the  same, 
of  the  number  or  amount  of  the  assessments  to  be  levied 
against  the  members. 

There  is  much  to  bear  out  this  view,  although  it  at 
first  blush  appears  so  wild  and  chimerical  to  those  who 
have  been  accustomed  to  think  of  the  death-rate  as  some- 
thing sure  to  increase.  There  are  old  regular  companies 
which,  after  so  long  as  thirty-five  years'  experience,  boast 
of  a  mortality  rate  of  ten  or  less  per  thousand  lives.  In 
these,  then,  there  must  have  been  some  influence  at  work 
to  counteract  that  inevitable  increase  of  age  which  brings 
with  it  the  equally  inevitable  increase  in  mortality.  This 
is  also  the  more  evident  when  one  contemplates  that  the 
mortality  rate  per  thousand  in  all  the  companies  together 
is  not  so  much  as  fifteen  per  thousand,  which,  expressed 
in  dollars,  is  rather  less  than  is  usually  collected  by  the 
same  companies  as  a  premium  at  the  lowest  ages  at  which 
insurance  is  granted  for  a  policy  for  the  term  of  life.  It 
is  not  probable  that  the  managers  of  these  companies 
would  deny  that  the  influence  which  so  modifies  their 
experience  is  the  constant  addition  of  new  lives  at  ages 
considerably  lower  on  the  average  than  the  ages  of  the 
lives  already  insured.  They  would  be  likely,  however, 
to  maintain  that  the  reason  of  this  was  that  they  offered 
to  the  young  the  advantage  of  a  discrimination  in  rates 


40 

of  premium,  while  the  level  assessment  companies  invited 
older  men  to  join  them  by  offering  apparently  superior 
advantages  to  them  and  were,  in  consequence,  unlikely 
to  attain  the  same  result. 

There  are  exceptional  cases  which  seem  to  indicate  that 
this  is  not  always  true.  It  is  easy,  for  instance,  to  account 
for  the  abnormally  high  death-rate  per  thousand  of  the 
Kentucky  jurisdiction  of  the  Ancient  Ordei  of  United 
Workmen;  loose  and  incautious  admission  of  members, 
followed  by  sluggish  inactivity,  would  naturally  bring 
this  about.  But  the  very  low  death-rate  per  thousand  of 
the  Iowa  jurisdiction  of  the  same  order,  which  jurisdiction 
was  organized  the  same  year,  is  not  so  easily  explained. 
Yet  more  difficult  of  explanation  is  the  low  death  rate  per 
thousand  of  the  Pennsylvania  jurisdiction,  now  more  than 
a  quarter  century  established,  and  also  the  low  average 
death-rate  of  the  order  as  a  whole.  It  would  be  interest- 
ing and  instructive  on  this  point  to  have  the  statistics  of 
this  great  mutual  organization  analyzed  and  tabulated  by 
some  thoroughly  competent  atcuary  who  is  not  blind  to 
the  lessons  which  it  would  teach. 

Meanwhile,  it  must  be  confessed  that  the  level  assess- 
ment system  has  not  proven  successful  in  most  cases  and 
that  in  no  case  can  it  be  held  that  it  has  certainly  proven 
that  it  can  be  permanently   successful.     The  difficulty 
jj  seems  to  be  that,  when  the  society  has  attained  something 
1 1  like  a  fair,   average  death-rate,   the  cost  per  annum  to 
|i  younger  persons  is  higher  than  in  organizations  which 
J  discriminate  between  ages  and  also  than  in  newer  level 
I  assessment  organizations.     There  is,    in  consequence,  a 
•  cessation  of  new  applicants  at  the  younger  ages,  which 
1  cuts  off  the  rejuvenating  influence  which  was  expected  to 
keep  the  death-rate  stable.     Moreover,   there  is  likely  to 


be  an  exodus  of  the  younger  lives  already  insured  in  the 
older  organization,  thus  accelerating  the  pace  toward  a 
higher  average  age  and  a  higher  death-rate.  And  these 
things  operate  in  fact  as  in  theory  they  are  seen  to  be 
likely  to  do.  Except  where  they  have  been  saved,  for  a 
time  at  least,  by  the  universality  of  their  field  of  opera- 
tions, or  by  the  fraternal  bond  of  union  between  their  mem- 
bers, or,  perhaps  yet  more  frequently,  by  the  very  low 
rate  of  expense  which  did  so  much  to  make  up  for  excess 
of  death-losses,  the  societies  which  started  upon  the  level 
assessment  plan  have  either  abandoned  it  or  have  exper- 
ienced a  largely  increasing  mortality,  after  a  time,  which 
presaged  ruia  at  no  distant  date. 

It  is  evident  that  this  would  be  obviated  if  the  taking 
and  retaining  of  insurance  were  compulsory;  that  is,  if 
all  the  people  as  they  attain  certain  ages  were  compelled 
to,  insure  and  to  keep  up  their  polices.  In  that  case  the 
average  age,  and  consequently  the  average  death-rate 
would  be  stable;  the  distribution  of  lives  on  the  scale  of 
different  ages  would  be  approximately  the  same.  Sup- 
pose that  this  were  applied  to  the  whole  nation;  the  aver- 
age cost  of  insurance,  or  the  cost  to  each  by  the  level  as- 
sessment plan,  would  then  be  expressed  each  year  by  the 
death-rate  per  thousand  persons;  and  this  would  not 
greatly  vary  from  year  to  year  from  eighteen  per  thou- 
sand. Suppose,  however,  that  of  a  sudden  the  compul- 
sion were  removed;  it  must  be  evident  that,  through  pure 
carelessness,  a  considerable  part  of  the  youths  of  the  na- 
tion would  withdraw,  and  that  others  would  be  likely  to 
form  societies  of  their  own  in  order  to  obtain  lower-priced 
insurance  for  a  time.  Similarly,  the  ^^new  accessions  to 
the  population  would  not  be  likely  to  come  into  the  old 
society  with  anything  like   unanimity.     Consequently, 


42 


the  distribution  of  lives  at  the  different   ages  would  be 
greatly  altered,  and  after  a  time  the  death-rate  would 
naturally   be   greatly   increased.     In  other    words,   the 
maintenance  of  such   an   organization   always   depends 
upon  the  shifting  to  new  shoulders  of  the  burden  which 
has  grown  too  heavy  for  the  old  backs.     The  cost  of  in- 
'^(Surance  is  made  light  to  the  present  generation,  but  only 
jjat  the  expense  of  the  next  generation,  which  can  always 
[shift  it  to  the  next, provided  only  that  the  next  will  receive 
'  it.     This  is,  perhaps,  not  the  place  to  fully  set  forth  the 
matter;  but  in  a  careful  study  of  economic  science,  it  will 
be  found  that  thrift  is  merely  a  relative  and  very  doubtful 
virtue,  arising  out  of  the  necessities  of  our  present  situa- 
tion and  the  ignorance  which  prevents  us  from  correcting 
the  evils  of  that  situation.     Saving  and  accumulating  are 
only  methods  of  obliging  posterity  to  do  for  the  deserving 
of  the  present   generation   what  posterity  ought   to  do 
without  any  such  compulsion. 

The  eminent  German  economist,  J.  M.  Baernreither, 
who  made  so  excellent  a  study  of  British  self-help  socie- 
ties, published  under  the  title,  "English  Associations  of 
Workingmen,"  says  of  this  system:  "If,  then,  the  rate 
or  levy  which  is  intended  to  cover  the  current  obligations 
of  the  society  is  distributed  equally  among  all  the  mem- 
bers, it  is  evident  that  the  younger  members  must  pay  a 
contribution  disproportionately  greater  than  the  expenses 
they  occasion  to  the  society;  and  that  this  state  of  things, 
the  higher  we  ascend  the  scale  of  age,  leads  to  the  oppo- 
site anomaly  that  the  oldest  members  pay  the  least  in 
proportion  to  their  benefits.  This  system  can  only  be 
defended  and  maintained  on  one  condition;  if  it  is  pos- 
sible in  any  way  to  create  permanent  societies,  containing  a 
constant  succession  of  members  approximately  equal  in 


43 


age,  equally  healthy  and  equally  able  to  pay,  then  the 
surplus  accruing  from  the  younger  classes  of  members  will 
always  supply  the  means  of  covering  the  expenditures 
occasioned  by  the  older  ones,  and  the  arrangement  as  a 
whole  will  have  no  unfairness  in  it,  since,  although  the 
younger  members  pay  today  for  the  older  ones,  they  are 
sure  on  the  other  hand  of  being  similarly  paid  for  in 
future  by  the  next  generation.  If,  therefore,  it  is  feasible 
by  means  of  a  regular  influx  of  young  and  healthy  per- 
sons in  the  place  of  the  members  who  die  off  to  maintain 
a  balance  between  the  obligations  and  the  contributions, 
then  the  only  need  of  a  reserve  fund  will  be  to  enable  the 
society  to  adjust  occasional  oscillations  or  to  meet  ex- 
ceptional demands.  The  history  of  English  Friendly  | 
Societies  has  amply  shown,  if  indeed  any  further  proof  were  j 
needed,  that  this  levy  system  in  conjunction  with  the 
principle  of  voluntary  membership  is  an  impossibility." 

It  may  be  that  even  the  disastrous  results  of  the  prac- 
tice of  the  system  do  not  warrant  the  use  of  the  word 
* 'impossibility."  It  would  in  any  event  be  interesting 
and  profitable  to  analyze  and  test  the  experiences  of  both 
societies  which  have  been  ruined  and  those  which  as  yet 
seem  to  bid  defiance  to  the  apparent  necessity  of  final  ex- 
tinction under  the  operation  of  the  level  assessment  plan. 
But,  it  cannot  be  denied,  the  developments  seem  to  indi- 
cate that  even  so  severe  an  indictment  may  be  within  the 
deserts  of  the  plan.  The  stoutest  and  the  most  logical 
defender  of  the  English  Friendly  Societies  is  the  Rev.  J. 
Frome  Wilkinson, whose  admiral  work,  "Mutual Thrift," 
is  also  the  ablest  account  of  their  history  and  achieve- 
ments. That  he  has  found  reason  to  roundly  condemn 
the  level  assessment  plan,  may  be  gathered  from  the  fol- 
lowing  quotation   from  his  book:   "The    comparatively 


sound  financial  condition  of  the  Manchester  Unity  is  the 
result  of  a  long  insistance  that  adequate  contributions 
should  be  paid  by  its  members;  in  other  words,  contribu- 
tions graduated  according  to  age  at  entry,  instead  of  uni- 
form contributions  at  all  ages,  whether  i8  or  40.  Other 
societies  in  adopting  a  graduated  or  sliding  scale  at  a  cer- 
tain date  did  not  make  it  binding  on  their  old  as  well  as 
their  new  members.  In  the  history  of  the  adoption  of 
graduation  we  have  the  slaying  of  the  most  terrible  enemy 
to  a  sound  condition  that  has  ever  warred  against  the 
efiSciency  of  the  Friendly  Society  system.  To  be  rid  of 
such  a  fell  disease  as  uniform  contributions  is  like  the 
ejectment  of  an  undermining  and  life-destroying  con- 
sumption, preying  upon  the  vitals  till  the  outwardly  fair 
frame  falls  in  hopeless  ruin."  It  is  thus  seen  that  both 
these  learned  gentlemen,  prone  as  they  are  to  favor  co- 
operative insurance,  become  very  positive,  and  even 
poetically  vehement  upon  the  subject  of  the  danger  and 
impractibility  of  the  level  assessment  plan.  The  facts, 
however,  would  more  clearly  appear  if  the  whole  history 
of  such  societies  in  all  their  details  were  submitted  to  im- 
partial expert  examination,  which  would  be  of  incalcu- 
lable value. 


45 


ASSESSMENTS    GRADUATED    ACCORDING    TO 
AGES  AT  ENTRY. 

The  assessment  societies  which  operated  upon  the 
level  assessment  system,  were  never  greatly  disturbed  by 
the  competition  of  the  regular  companies,  which  drew  fur- 
ther apart  from  them  instead  of  undertaking  to  recover 
the  field  of  pure  insurance.  For  some  time,  partly  be- 
cause of  the  crisis  of  1873  and  the  ensuing  hard  times, 
but  yet  more  because  of  the  popularity  of  assessment  com- 
panies, the  total  insurance  in  the  regular  companies  de- 
creased year  by  year,  while  the  assessment  companies 
grew  apace.  And  when  the  regular  companies  began  to 
bestir  themselves  and  to  advance  once  more,  it  was  along 
the  line  of  least  resistance,  which  was  investment  insur- 
ance, leaving  the  pure  insurance  field,  that  is,  the  field 
of  insurance  purchased  primarily  and  wholly  for  protec- 
tion, to  the  assessment  societies  almost  without  a  struggle. 
If,  therefore,  there  had  been  no  new  competition  upon  a 
shifted  basis,  there  might  have  been  a  long  delay  before 
the  assessment  societies  should  have  found  in  necessary  to 
abandon  the  level  assessment  plan,  for  the  average  age 
could  have  been  nearly  maintained. 

But  it  was  not  so  to  be.  The  arguments  of  agents  of 
regular  companies  to  the  effect  that  a  man  at  forty  should 
pay  more  than  a  man  at  twenty,  and  that  a  company 
which  collected  the  same  from  each  could  not  survive, 
struck  a  responsive  chord  in  the  consciousness  of  level-  ^ 


46 

headed  men.  It  was  plausible,  it  was  reasonable.  And  the 
inevitable  consequence  was  that  societies  which  respected 
this  general  view  were  organized.  The  organizers  knew 
nothing  about  the  real  apportionment  of  losses  in  regular 
companies;  they  saw  only  what  all  observers  saw,  rates 
fixed  at  ages  of  entry.  Accordingly  they  graduated  their 
assessments  according  to  ages  at  entry,  often  following 
the  scale  of  mortality  rates  per  cent,  at  the  different  ages 
according  to  some  standard  table.  They  did  not  under- 
stand that  this  scale  is  to  be  understood  as  an  advancing 
table,  to  be  applied  at  the  actual  ages  attained,  and  not 
according  to  initial  ages.  But,  whatever  may  have  been 
the  misconceptions,  the  adoption  of  any  plan  which  offered 
superior  advantage  to  young  men  was  a  body  blow  at  the 
companies  which  were  doing  business  upon  the  level 
assessment  plan.  It  was  and  is  a  constant  menace  to 
them,  effectually  interfering,  wherever  it  is  brought  into 
the  competition,  with  the  sustaining  of  the  average  age  in 
level  assessment  societies. 

It  remains  to  be  seen  whether  these  societies  are  not 
equally  dangerous  as  competitors  to  each  other.  That 
the  newer  ones  with  a  very  low  mortality  draw  from  the 
older  ones  is  of  course  manifest;  but  that  would  have 
been  true  on  any  assessment  plan  and  does  not  proceed 
from  any  defect  in  this  plan.  The  defect,  if  any,  which 
will  defeat  the  permanency  of  the  plan  must  be  sought 
for  in  any  inequity  of  rates  which  would  in  the  long  run 
make  the  terms  arduous  to  young  men  and  thus  disturb 
the  average  of  ages  and  prevent  growth,  leaving  the  com- 
pany to  gradually  decay. 

For  the  purpose  of  determining  whether  such  inequities 
would  follow  the  use  of  the  table  of  mortality  rates  per 
cent  for  the  graduating  of  assessments,  let  us  make  a 


47 

calculation.  The  table  most  commonly  used  is  the  * 'Com- 
bined Experience  of  Seventeen  British  Offices, "  commonly 
known  as  the  'Actuaries. '  According  to  this  table,  the 
losses  would  be  apportioned  among  members  admitted 
at  the  ages  named,  as  follows: 

Age  20  $  7.29  ^      Age  50  $15-94 

"    30      7.93  *'     60     30.34 

"    40     10.36  "     70     64.93 

lyCt  us  suppose  a  number  of  persons  admitted  ten  years 
ago  at  ages  20,  30,  40  and  50  and  whose  ages  are  now 
advanced  to  30,  40,  50  and  60,  respectively.  The  risks  of 
their  decease  during  the  current  year  will  approximate 
the  rates  in  the  scale  at  their  present  ages.  But  the  mem- 
ber who  was  insured  at  fifty  is  paying  only  about  twice  as 
much  as  the  member  who  was  admitted  at  twenty,  although 
persons  of  his  present  age  are  contributing  to  the  losses 
of  the  company  in  the  proportion  of  almost  four  to  one  of 
the  persons  admitted  at  age  20  and  who  are  now  30.  Ad- 
vance these  another  ten  years,  which  makes  the  survivors 
40,  50,  60  and  70  respectively.  The  risk  for  the  year  on 
the  member  admitted  at  age  50  has  now  advanced  over 
four  times  its  original  figure  while  the  risk  on  the  mem- 
ber admitted  at  20  has  advanced  only  about  one-half. 
The  risk  on  the  former  is  now  about  65  to  10  of  the  latter 
which  means  that  members  fulfilling  the  former  descrip- 
tion are  contributing  $65  to  the  total  loss  for  every 
$10  contributed  by  the  members  fulfilling  the  latter 
description,  while  the  former  only  contribute  to  pay  these 
losses  at  the  rate  of  $15.94  to  $7.29  contributed  by  the 
former.  That  this  becomes  rapidly  more  onerous  upon 
the  younger  members  is  apparent,  and  the  older  such  a 
company  becomes,  the  more  its  younger  members  are  dis- 
criminated against.     This  problem  would  be  confused  by 


48 

the  introduction  of  the  new  insurance  and  the  lapses  of 
insurance,  common  to  all  companies;  but  its  essential 
features  would  not  be  changed.  It  would  still  remain 
true  that  by  the  mere  lapse  of  time  the  application  of  a 
table  of  mortality  rates  per  cent  as  a  table  of  fixed  assess- 
ments would  come  to  do  injustice  to  all  the  younger  mem- 
bers of  a  company  with  the  result  that  in  time  the  adher- 
ence of  new,  young  members  would  be  greatly  dimin- 
ished and  decay  would  set  in. 

Organizations,  employing  this  system,  however,  possess 
a  decided  advantage  over  those  which  employ  the  plan  of 
level  assessments,  an  advantage  which  is  never  wholly 
lost.  They  always  offer  to  the  young  advantages  superior 
to  those  held  forth  by  societies  of  the  latter  sort.  And  as 
is  common  to  many  assessment  societies,  especially  when 
managed  upon  a  democratic  plan,  the  very  low  expense 
rate  for  a  long  time  prevents  the  inequity  from  becoming 
apparent.  The  cost  is,  despite  any  inequity,  so  low,  in 
comparison  with  that  in  regular  companies  with  their 
high  expenses,  that  the  buyers  disregard  the  inequity 
entirely.  Against  this  economy  of  administration,  defects 
of  plan  count  but  little  in  the  earlier  years  of  the  socie- 
ties at  least.  An  altogether  arbitrary  method  of  graduat- 
ing assessments  according  to  age  at  entry  was  introduced 
and  is  yet  practiced  by  a  Western  association  which  has 
signalized  itself  for  the  excellence  and  economy  of  its  ad- 
ministration and  has  accordingly  achieved  great  popular- 
ity. The  method  by  which  this  society  graduates  its 
rates  of  assessment  is  as  follows:  Upon  admission  the 
member  contributes  toward  the  guarantee  funl  for  each 
certificate  as  many  dollars  as  there  are  years  in  his  age 
and  the  losses  are  assessed  against  the  members  in  the 
form  of  percentage  levies  upon  the  guarantee  fund  contri- 


49 


7-93 

7-50 

10.36 

lO. 

15-94 

12.50 

bution,  or  in  other  words  in  proportion  to  the  number  of 
years  of  the  age  at  entry  of  each  member.  To  see  whether 
this  would  do  justice,  let  us  again  assume  mortality  equal 
to  that  in  the  actuaries'  table.  The  first  year  of  insur- 
ance, the  contributions  to  make  up  the  losses  bear  the 
following  proportions  to  the  contributions  to  pay  losses: 

Age  Proportionate  Contribution 

to  losses.  to  pay  losses. 

20  7.29  5. 

30 
40 

50 

It  will  be  observed  that  this  system  makes  the  contri- 
bution of  the  youngest  member  too  low  in  proportion  to  all 
the  rest;  that  the  contributions  at  30  and  40  are  about  in 
the  right  ratio;  the  contribution  at  age  50  not  high  enough 
in  proportion  to  30  and  40,  but  too  high  in  proportion  to 
20.  The  system  seems,  therefore,  to  favor  the  young. 
I,et  us  look  at  it  again,  however,  ten  years  after  their 
admission: 

Proportionate  Contribution 
to  losses.  to  pay  losses. 

7-93  5. 

10.36  7.50 

1594  10. 

30.34  12.50 

It  will  be  noted  now  that  the  ratio  of  contributions 
to  pay  losses  of  those  admitted  at  20  and  30  is  still  too 
favorable  to  age  20;  they  are  now  30  and  40,  however. 
The  ratio  between  those  admitted  at  30  and  40  is  no 
longer  fair,  the  older  member  paying  but  a  third  more 
when  he  should  pay  a  half  more.  And  the  member  ad- 
mitted at  50  has  immensely  the  best  of  it;  he  pays  two 


Age 

at  entry. 

present. 

20 

30 

20 

40 

40 

50 

50 

60 

60 

and  a  half  times  the  contribution  of  the  one  admitted  at 
20,  while  the  cost  is  four  times;  two- thirds  more  than  30, 
while  the  cost  is  three  times;  one-fifth  more  than  forty, 
while  the  cost  is  twice  as  great.  I^et  us  look  at  it  again 
ten  years  after  this: 

Age  Proportionate  Contribution 

at  entry.      present.  to  losses.  to  pay  losses. 

20  40  10.36  5. 

30  50  1594  750 

40  60  30-34  10. 

50  70  64.93  12.50 

Without  stopping  to  analyze  this,  it  is  apparent  that 
older  members  are  still  profiting  at  the  expense 
of  the  younger.  To  recapitulate,  then,  this  plan 
as  between  ages  20  to  40  during  the  first  years  of 
its  operation  is  not  glaringly  unfair  and  discriminates  in 
favor  of  the  younger  ages.  Eventually  it  turns  the 
other  way. 

/  It  remains  to  be  inquired  whether  there  can  be  any 
/system  of  fixed  rates  of  assessment  according  to  ages  at 
entry  which  will  so  distribute  the  loss  among  the  mem- 
bers that  each  will  pay  for  the  protection  he  receives,  no 
less  and  no  more.  It  is  not  of  the  first  importance  that 
this  correspondence  of  cost  and  price  should  be  exact 
from  year  to  year,  but  merely  that  in  the  long  run  they 
should  correspond.  And  yet  if  they  do  not  correspond 
/  from  the  start,  it  can  only  mean  that  for  a  time  one  is 
paying  less  and  another  more  than  the  value  received  in 
the  expectation  of  an  ultimate  reversal  of  these  con- 
ditions. What  is  there,  then,  to  insure  that  the  first, 
when  he  has  enjoyed  his  advantage  to  the  full,  will  con- 
sent to  remain  until  he  has  returned  enough  more  than 
current  cost  to  offset  his  gain?   It  follows,  therefore,  that 


51 

no  system  which  does  not  closely  correspond  from  year 
to  year  with  the  current  cost  of  the  protection  can  do 
justice  and  thus  hold  the  members  together.  And  it  has 
been  shown  already  that  a  system  which  starts  right  in 
this  respect  gets  wrong  in  a  very  little  time,  because  the 
ratios  of  actual  cost  between  the  different  members  shift 
as  their  ages  advance  and  that  the  discrimination  is 
inevitably  against  the  younger  members. 


52 


ARE  FIXED  GRADED  ASSESSMENTS  FEASIBI^K? 

The  general  proposition  that  it  might  be  possible  to  fix 
in  advance  according  to  ages  at  entry  the  proportionate 
rates  for  assessment  is  not  to  be  cast  aside  merely  because 
the  existing  methods  of  fixing  these  rates  are  so  clearly 
erroneous.  In  would  at  first  glance  seem  plausible  that 
a  scheme  could  be  devised  which  would  operate  on  this 
plan  and  secure  substantial  justice  to  all  concerned.  It  is 
the  business  of  all  mutual  companies,  whether  regular  or 
assessment  in  form,  to  distribute  the  burden  of  loss  among 
their  members  so  that  each  receives  on  the  whole  the  pro- 
tection for  which  he  pays  and,  contrariwise,  pays  for  the 
protection  which  he  receives.  It  is  clear  that  every  per- 
son who  is  insured  should  expect  to  pay  during  his  aver- 
age life-time  as  much  as  any  other  pays  during  his  aver- 
age life-time,  though  the  expectation  of  the  first  be  five 
years  and  of  the  second  twenty-five.  What  one  loses  by 
going  without  insurance  from  ages  twenty  to  forty  is  the 
benefit  of  the  protection;  what  he  gains  if  he  survives  to 
age  forty,  is  merely  interest  on  his  witheld  payments.  He 
must  now  pay  annually  enough  more  than  he  would  if 
insured  at  age  twenty,  to  make  an  even  quota  by  the  ex- 
piration of  an  average  life-time.  If  it  were  not  for  the 
singular  want  of  enterprise  in  devising  new  methods, 
suited  to  scientific  requirements,  it  would  be  remarkable 
that  no  one  has  yet  based  graded  assessments  at  ages  of 
entry  on  the  proportionate  expectations  of  life. 


53 

'  The  rule  would  be:  Apportion  losses  among  the  insured 
by  assessments  in  inverse  ratio  to  the  expectancies  of  the 
insured.  This  would  seem  to  insure  a  fair  distribution  of 
the  loss  burden.  To  test  its  correctness  let  us  apply  it 
and  observe  whether  the  result  is  justice  to  all.  For  this 
purpose,  the  American  experience  tables,  compiled  by 
Levi  Meech,  are  here  employed.  According  to  these 
tables,  expectancies  by  initial  ages  at  intervals  of  ten 
years,  are  as  follows: 

From  age  20.  .43.07  years.       From  age  60. .  14.56  years. 
"       "    30.. 3585      "  "       "     70..   8.97      " 

"    40.. 28. 49      "  "       "    80..   4.87      '• 

'♦       "    50.. 21. 24      "  "       ''    90..   2.16  .    " 

If  the  rule  applies  at  all,  it  is  evident  that  it  must  be  a 
fair  method  of  distributing  losses  among  the  members  of 
a  society  made  up  of  persons  admitted  at  any  two  ages, 
into  which  no  new  members  enter  and  from  which  none 
withdraw.  Of  course,  such  a  company  would  one  day 
discontinue  for  want  of  members.  But  that  is  not  the 
question,  which  is  merely  whether  the  rule  will  do  justice 
or  not.  For  simplicity's  sake,  let  us  suppose  a  company 
composed  of  members  admitted  at  ages  20  and  90  only. 
The  first  point  to  demand  attention  is  that  it  is  bound  to 
make  a  deal  of  difference  in  what  proportion  the  member- 
ship is  divided  between  the  two  ages.  If  they  were  of 
equal  number,  it  is  at  once  clear  that  the  younger  mem- 
bers will  be  overcharged.  It  appears,  therefore,  that  this 
plan  would  offer  superior  attractions  to  old  lives  in  pro- 
portion as  they  availed  themselves  of  it. 

Let  us  suppose  that,  notwithstanding  this,  the  member- 
ship was  divided  between  the  ages  in  the  proportion  which 
persons  of  those  ages  bear  to  each  other  in  the  population. 
According  to  the  table  we  are  using,  this  will  be  in  the 


54 

following  ratio:  For  every  1,673  persons  at  age  90, 
93,606  persons  at  age  20.  This  is  not  quite  applicable  to 
the  general  population,  being  drawn  from  the  survivors  of 
insured  lives,  and  therefore  representing  a  stable  instead 
of  an  increasing  population,  but  it  will  ansv/er  all  practical 
purposes.  Let  us,  then,  suppose  a  company  made  up  of 
1,673  persons  admitted  at  age  90  and  of  93,606  persons 
admitted  at  age  20.  In  order  to  avoid  fractions,  which 
would  not  greatly  alter  the  result,  let  us  call  their  expec- 
tancies 2  and  43  years  respectively.  Under  the  rule,  then 
those  admitted  at  90  must  pay  $43  each  for  every  $2  each 
paid  by  those  admitted  at  20.  Assuming  mortality  as  per 
the  table,  this  will  be  the  history  of  the  society  in  ques- 
tion: 


TBAR     AGB8  AT-  NO.  HV- 

NO.  DY- 

LOSS. 

TOTAL  LOSS. 

HOW  DIVIDED. 

OP  CO.     TAINBD.        ING. 

ING. 

I 

(    20 

93,606 

633 

$633,000 

$854,000 

(90 

1,673 

549 

549,000 

$1,182,000 

328,000 

2 

(91 

92,973 

633 

633,000 

822,000 

1. 124 

403 

403,000 

1,036,000 

214,000 

3 

(22 
I92 

92,340 

633 

633,000 

784,000 

721 

281 

281,000 

914,000 

I  30.  000 

4 

]23 

i93 

91,707 

634 

634,000 

741,000 

440 

187 

187,000 

821,000 

80  000 

5 

.  24 

91.073 

635 

635,000 

708,000 

94 

253 

117 

117,000 

752,000 

44,000 

6 

25 

90,438 

636 

636,000 

682,000 

95 

136 

68 

68,000 

704,000 

22,000 

7 

26 

89,802 

639 

639,000 

666,000 

I96 

68 

38 

38,000 

677,000 

11,000 

8 

27 

89,163 

641 

641,000 

654,000 

(97 

30 

18 

18,000 

659,000 

5,000 

9 

28 
(98 

88,522 

644 

644,000 

650,000 

12 

8 

8.000 

652,000 

2,000 

TO 

29 
(99 

87,878 

649 

649,000 

652,000 

LKJ 

4 

4 

4,000 

653,000 

1,000 

55 

Fractions  of  thousand  dollars  have  been  disregarded. 
The  members  admitted  at  age  20  have  contributed  to  the 
losses  $6,377,000  and  have  contributed  to  pay  losses, 
$7,213,000.  The  members  admitted  at  age  90  have  con- 
tributed to  the  losses  $1,673,000  and  to  pay  losses  $837,- 
000.  The  rule  in  its  application  fails  therefore  to  do  jus- 
tice. The  error  in  the  reasoning  which  made  the  rule,  lay 
in  the  supposition  that  the  total  loss  would  be  stable  from 
year  to  year,  whereas  it  was  an  increasing  amount  and 
always  must  be  in  a  new  company.  Were  it  not  for  the 
continual  organization  of  new  companies,  offering  seem- 
ingly superior  advantages  to  young  men,  this  rule  might 
work  more  equitably  when  a  fair  average  mortality  had 
been  attained.  Competitive  conditions  are  fatal  to  its 
equitable  operation,  and  in  any  case,  members  early 
admitted  at  older  ages  would  have  an  advantage  which 
some  one  some  time  would  needs  make  good. 

Even  in  a  society  where  this  average  death  rate  had 
been  attained  and  sustained,  the  application  of  this  rule 
would  not  be  exactly  fair.  The  average  life-time  of  men, 
starting  at  a  certain  age,  is  not  a  criterion  of  the  average 
yearly  risk  to  be  encountered.  That  is  accurately  found 
by  discounting  the  risk  of  dying  at  each  future  age  by  the 
chance  of  surviving  from  the  present  age  to  the  future 
ages  respectively,  and  then  dividing  the  sum  of  these  dis- 
counted risks  by  the  value  of  one  dollar  per  annum 
in  advance  discounted  by  the  chances  of  living  to  pay 
that  dollar.  All  this  is  without  any  reference  to  in- 
terest. 

But  the  difficulty  in  the  way  of  employing  either  of  \ 
these  methods  in  apportioning  loss  contributions  may  be 
re-stated  from  the  last  preceding  paper  of  this  series.     It 
consists  in  this:  If  the  proportionate  contribution  of  each 


56 

is  in  the  precise  ratio  of  the  mortality  rates  per  cent  at 
age  of  entry,  it  has  been  proven  that  persons  admitted  at 
older  ages  would  then  have  the  advantage;  if  the  propor- 
tionate contributions  do  not  correspond  with  the  rates 
per  cent,  it  can  only  mean  that  some  now  pay  more  and 
some  less  than  the  value  of  present  protection,  a  condition 
which  must  ultimately  be  reversed  to  do  justice  to  all;  if 
a  start  be  made  in  this  way,  there  is  no  evidence  that  such 
a  reversal  can  take  place  and,  if  it  did,  no  reason  to  believe 
that  those  who  had  reaped  the  advantage,  would  remain 
I  to  make  good  to  others  the  gain  they  had  made.  Such 
is  not  human  nature. 


57 


THE  NATURAL   PREMIUM  OR  SLIDING  SCALE 
ASSESSMENT  PLAN. 

It  is  axiomatic  that,  all  other  things  being  equal,  the 
risk  of  death  increases  with  the  age,  especially  after  age  20 
has  been  passed.  There  are  possibilities  of  a  disturbance 
of  this  natural  increase  by  exigencies  of  occupation, 
child-bearing,  etc.  But  while  during  the  earlier  years 
the  advance  is  not  marked,  the  difference  between  the 
risk  of  death  at  age  20  and  the  risk  at  age  40  is  fully  one- 
half.  A  man  in  good  health  at  20  runs  but  two -thirds 
the  risk  of  dying  during  the  year  than  another  in  equally 
good  condition,  but  aged  40  instead  of  20,  is  compelled  to 
run.  The  fact  that  the  latter  insured  at  20  will  not  alter 
this  state  of  affairs.  Indeed,  because  of  medical  selection, 
the  man  who  is  freshly  insured  at  age  40  is  likely  to  be  a 
better  risk  for  the  year  than  the  man  who  insured  twenty 
years  before,  on  the  average.  Consequently,  it  is  evident 
that  a  system  of  insurance  which  aims  to  collect  currently 
just  what  the  insurance  is  worth  must  advance  the  assess- 
ment as  the  risk  increases,  which  means,  practically,  as 
the  age  increases. 

That  it  should  be  considered  a  hardship  for  this  to  be 
done  is  evidence  of  the  injury  which  has  been  inflicted  by 
the  misleading  statements  of  the  older  companies  and 
societies,  regular  and  assessment  alike.  Primarily  and 
principally  the  blame  is  due  the  regular  companies  who 
have  assailed  the  usual  assessment  plans  because  the  cost 
advanced,  instead  of  because  the  rales  of  assessment  did 


1 

^ 


58 

not  advance.  The  mystery  with  which  they  shrouded  the 
level  premium  system  and  the  constant  argument  against  an 
advancing  premium  have  had  the  effect  of  making  a  large 
part  of  the  public  feel  that  insurance  should  not  increase 
in  cost  with  the  increasing  age  and  that  it  is  dangerous 
to  have  it  do  so.  Precisely  the  contrary  is  true,  as  every 
actuary  knows;  not  only  does  insurance  increase  in  cOvSt 
with  age  inevitably,  but  it  is  positively  disastrous  for  any 
company,  assessment  or  regular,  to  attempt  to  prevent 
thib  natural  increase  in  cost  being  paid  by  the  insured. 
The  only  thing  that  regular  companies  do  in  their  level 
premium  policies  is  to  commute  this  increasing  cost  into 
a  level  premium  by  charging  more  than  cost  for  a  time 
and  then  using  the  accumulated  assets  of  the  policy  to 
keep  the  price  level  when  the  cost  is  higher  than  the 
price.  The  fact  is  that  the  insurance  is  charged  for  in 
the  accounting  of  every  regular  company  on  the  basis  of 
increasing  cost. 

Perhaps  it  is  well  to  stop  at  this  point  and  explain  the 
actual  method  by  which  this  is  done.  It  must  be  premised 
that  the  mathematical  methods  may  be  different  in  prac- 
tice, but  the  intended  result  is  the  same.  Assuming  that 
the  regular  company  has  reached  by  a  calculation  a  cer- 
tain net  premium  and  from  that,  by  adding  for  loading, 
a  certain  gross  premium  for  a  certain  age,  which  net  pre- 
mium is  the  commuted  and  discounted  costs  of  insurance 
for  every  year  throughout  life,  divided  by  the  present 
value  of  a  payment  of  one  dollar  per  annum  in  advance 
throughout  life,  the  inquiry  is:  How  does  the  company 
keep  its  account  with  the  insured?  The  process  is  in  effect 
as  follows:  To  the  premium  at  the  end  of  the  policy  year 
is  added  interest  at  the  net  current  rate  of  the  company's 
experience;  from  this  is  deducted  the  policy's  share  of 


59 

the  company's  expenses  (usually  calculated  as  a  percen- 
tage of  the  loading),  and  the  policy's  share  of  the  actual 
death  losses — this  is  computed  by  charging  for  the  net  in- 
surance the  net  natural  premium  for  the  current  age. 
The  net  insurance  is  the  face  of  the  policy  less  the  total 
policy  assets,  and  the  net  natural  premium  is  that  percen- 
tage of  the  table  natural  premium  which  the  total  losses 
bear  to  the  total  sum  which  would  have  been  lost,  had 
deaths  occurred  according  to  the  table;  the  remainder  is 
the  net  policy  assets.  The  policy  assets  are  further 
divided  into  reserve,  being  the  amount  considered  neces- 
sary in  order  to  hold  the  price  level,  and  surplus,  being 
whatever  remains  after  the  reserve  has  been  deducted. 
While  the  price  remains  level  or  may,  by  the  use  of  the 
surplus  to  pay  premiums,  even  decrease,  the  cost  per 
$1000  of  the  actual  insurance  furnished  increases  every 
year  and  the  increased  cost  is  charged  against  the  policy- 
holder's funds. 

In  view  of  this,  it  is  plain  that  the  regular  companies, 
if  they  desired  to  teach  the  truth  and  to  direct  men  into 
the  right  and  safe  way,  should  have  taught  that  the  cost 
of  insurance  does  increase  and  that  the  level  premium  is 
only  a  practical  convenience,  in  no  wise  safer  for  a  company 
than  an  increasing  premium,  though  possibly  a  wiser  pur- 
chase for  the  insured.  The  difference  between  the  regular 
company  managers  and  the  assessment  society  managers, 
both  of  whom  taught  the  same  false  and  misleading  doc- 
trine, was  that  the  former  knew  that  the  teachings  were 
false,  while  the  others  were  usually  themselves  deceived. 
It  may  be  asserted  with  confidence  that  any  company  or 
society  which  properly  recognizes  the  fact  that  the  cost 
of  insurance  increases  with  increasing  age  and  makes 
ample  provision  for  it,   either  by  the  level  or  the  increas-; 


60 

ing  premium  system,  will  not  fail  because  of  any  defect 
in  its  plan. 

So  deep  a  hold,  however,  has  the  false  doctrine  that  it 
is  possible  in  some  way  to  escape  the  inevitable  increase 
in  cost  obtained  upon  the  minds  of  the  insuring  public 
that  until  a  comparatively  recent  date  the  experiment  of 
furnishing  current  insurance  at  current,  and  consequently 
increasing,  cost  had  not  been  tried.  The  first  experi- 
ment was  made  by  an  actuary  who,  however,  had  not  the 
courage  of  his  convictions.  Sheppard  Homans  or- 
ganized the  Provident  Savings  Life  Assurance  Society 
for  the  purpose  of  supplying  the  demand  for  reliable  in- 
surance at  current  cost.  He  loaded  the  natural  premiums, 
though,  with  a  total  loading  about  as  great  as  is  used  in 
computing  gross  level  premiums  for  whole  life  at  the 
same  ages.  At  first,  only  a  small  part  of  this  loading 
could  be  used  for  expenses  and  most  of  it  was  reserved  as 
a  safety  fund  for  ten  years.  The  need  for  such  a  safety 
fund  is  not  apparent  when  it  is  remembered  that  every 
year's  premium  was  much  more  than  large  enough  for 
the  needs  cf  that  year  and  that  no  future  contingencies 
were  to  be  provided  for.  Of  course,  in  spite  of  this  heavy 
loading,  the  mortality  was  so  low  during  the  earlier  years 
that  the  dividends  from  that  source  kept  the  insurance  at 
a  satisfactory  price.  The  fame  of  the  actuary  was  such 
that  the  plan  commanded  confidence  everywhere  and  the 
company  became  popular.  But  soon  the  benefit  of  fresh 
selection  wore  off  and  the  cost  was  advanced  and  the 
price  with  it.  Unfortunately,  the  safety- fund  compromise 
had  furnished  the  agents  with  a  fairy  tale  about  the  price 
never  materially  increasing;  and  the  dissatisfaction  of 
the  policyholders  became  greater  every  day.  Thus 
another  opportunity  to  throw  off  all  reserve  pretensions 


was  offered;  but,  instead,  a  system  of  making  a  natural 
premium  a  level  preminra  by  holding  back  the  surplus 
to  ''equate  it"  was  adopted  instead.  The  consequence 
of  this  craven  conduct  is  that  the  words  "natural  pre- 
mium" have  no  meaning  in  the  minds  of  most  people 
today.  The  most  of  the  companies,  selling  insurance  on 
the  so-called  natural  premium  plan,  are  really  dealing  in 
level  premium  insurance  at  inadequate  rates.  Such  is 
the  unfortunate  result  of  the  first  attempt  at  selling  in- 
surance at  its  current  cost. 

At   present,  a   great   fraternity  is   making   the   same 
attempt  under  equally  great  difficulties,  also  self-imposed 
and  because  the  managers  lacked  the  courage  of  their 
convictions.     The  price  is  increased  until  age  65  at  a 
rate  of  increase  more  rapid  than  the   actual  increase  of  1 
cost  is;  but  after  age  65  no  increase  is  made.     The  mana-  | 
gers  of  the  fraternity  acted  upon  the  misconception  that 
but  few  persons  survive  to  that  age.     The  fact  is  that 
about  two-thirds  of  all  the  persons  insured  will  be  living 
at  that  age.     Of  course,  however,  this  will  make  no  dif- 
ference in  the  cost  until  some  persons  actually  pass  that  1 
age.     Then,  the  price  to  the  younger  members  will  be  \ 
increased  over  the  cost  because    insurance  will   be  fur-   I 
nished  to  the  older  members  for  less  than  cost.     This  will    ' 
inevitably  result  in  the  driving  of  younger  members  into 
other  societies,  which  has  been   the   bane  of  assessment 
organizations.     The  assessments  start  at  20  cents  at  age 
20  and  increase  at  the  rate  of  i  cent  for  each  year  until 
age   40,  from   which   time   the   increase  is  more   rapid. 
This  makes  the  price  twice  as  much  at  40  as  at  20,  while 
the  cost   is  only  about   half  as  much  more.     There  is  a 
higher  advance  than  is  required  up  to  age  65,  so  that  the 
younger  members   are  favored   and    more   than    normal 


62 

pressure  is  put  upon  members  to  withdraw  when  insur- 
ance is  no  longer  needed. 

If  this  fraternity  had  been  entirely  consistent,  it  is 
probable  that  no  person  would  ever  carry  in  it  a  policy 
beyond  age  seventy  at  the  outside.  The  consequences  of 
this  would  be  that  the  fraternity  would  never  be  burdened 
with  insurance  on  men  upon  whom,  candidly,  insurance 
is  impossible,  because  death  is  not  a  risk  but  a  certainty 
and  insurance  is  also  ridiculous  because  life  has  no  value 
to  insure.  Level  premium  insurance  keeps  up  the  fic- 
tion of  continuing  insurance  in  old  age;  it  is  only  a  fic- 
tion, for  the  actual  insurance  rapidly  decreases  as  the 
reserve  increases.  There  is  no  room  for  such  fictions  or 
pretenses  in  natural  premium  insurance. 


63 


LEVEL  PRICE,  BUT  INCREASING  COST. 

Had  anybody  prophesied  in  the  early  history  of  assess- 
ment life  insurance  that  the  day  would  come  when  the 
principal  societies  would  be  making  use  of  a  system  ac- 
curately modeled  after  the  hated  "old  line"  level  premium 
insurance,  he  would  have  been  accounted  mad.  Yet  that 
is  just  what  has  happened  and  is  happening  at  this  day. 
Tiiat  this  is  taking  place  in  societies  which  but  a  few  years 
ago  would  have  most  savagely  denounced  the  same 
thing  is  significant  of  the  vitality  of  mutual  institu- 
tions, and  ought  to  discourage  the  rash  juggler  with 
statistics  from  prognosticating  ruin  for  any  mutual  institu- 
tion, however  incorrect  the  plan  upon  which  it  operates. 
There  can  be  no  doubt  in  any  case  that  the  whole  trend ' 
of  progressive  movements  in  assessment  life  insurance  is  ( 
toward  reserves,  equated  or  level  premiums  and  all  those 
safeguards  which  were  formerly  thought  peculiar  to| 
regular  insurance. 

This  came  about  little  by  little,  as  the  vicissitudes  of 
events  or  the  ingenuity  of  men  evolved  changes  in  the 
prevailing  methods.  The  desirability  of  keeping  a  little 
money  in  hand  was  early  seen  by  many  assessment  society 
managers.  It  was  called  by  some  "a  death  in  hand";  and 
in  fact  in  the  course  of  time  the  societies  which  did  not 
collect  before  looses  occurred,  instead  of  ''passing  around 
the  hat' '  after  the  man  was  dead,  were  few  in  number  and 
in  influence.  An  empty  treasury  was  not  considered  al- 
together desirable.  Consequently,  there  began  to  be  in- 
vented various  excuses  for  accumulating  a  fund.     Natur- 


64 


ally,  this  had  to  be  done  with  caution,  in  order  not  to 
arouse  the  suspicions  of  the  patrons  that  there  was  some- 
thing after  all  in  the  idea  that  reserves  ought  to  be 
accumulated.  These  funds  were  variously  named  and 
accounted  for,  one  society  often  boasting  as  many  as  two 
or  three  separate  funds.  But  the  chief  purpose  for  which 
the  accumulation  was  designed  was  to  make  the  society 
safe;  hence  it  was  most  frequently  called  a  safety  or 
guarantee  fund. 

Sometimes  there  were  very  foolish  provisions  relative 
to  the  fund  and,  yet  more  often,  there  was  a  pathetically 
large  amount  of  benefit  or  security  expected  from  a  piti- 
fully small  fund.  The  most  flagrantly  erroneous  deduc- 
tions from  ill  understood  mortality  statistics  have 
caused  many  of  these  vagaries.  One  society,  or,  indeed, 
a  train  of  societies,  arranged  to  provide  paid-up  policies 
in  twenty  years  merely  upon  the  total  payment  of  one  dollar 
and  a  half  by  the  insured,  every  time  one  dollar  was 
assessed  for  current  losses.  These  societies  are  now  gone 
the  way  of  men;  not  because  of  their  erroneous  systems, 
however,  but  purely  because  of  bad  and  dishonest  man- 
agement which  wrecks  more  companies  of  both  sorts 
than  all  defects  of  plan.  But  another  society,  of  recent 
formation  and  under  the  tutelage  of  a  man  of  much  more 
than  average  intelligence  and  honesty,  at  this  time  offers 
a  yet  more  favorable  arrangement  and  solemnly  proves  that 
it  is  feasible  on  the  basis,  however,  that  nobody  lives  beyond 
his  expectancy.  As  has  been  said,  in  the  last  paper,  an- 
other society,  which  alone  of  all  of  them  openly  recognizes 
and  advocates  the  principle  that  the  cost  of  insurance 
increases  with  age,  yet  draws  back  at  the  full  application 
of  that  principle  in  old  age,  and  hides  behind  the  plea 
that  not  many  survive  to  age  65,  when  the  fact  is  that 


65 

many  more  than  half  of  those  who  insure  with  it  will 
reach  that  age. 

Whatever  may  be  the  pretended  reason  for  accumulating! 
a  fund,  the  real  purpose  has  commonly  been  to  avoid 
increasing  the  price,  when  by  reason  of  greater  mortality 
the  cost  was  increased.  In  societies  of  moderate  size, 
there  is  never  any  regularity  of  loss,  there  not  being  lives 
enough  to  secure  an  average.  Consequently,  it  was  soon 
evident  to  shrewder  of  the  managers  that  it  was  the  part 
of  wisdom  to  keep  a  little  extra  money  at  hand  to  meet 
emergencies  or  excessive  mortality.  In  other  words,  it 
was  to  equalize  the  price,  to  perform  the  very  office  which 
the  reserve  of  a  level  premium  policy  performs.  It  matters 
not  that  this  provision  and  the  fund  resultant  from  it  were 
commonly  ludicrously  inadequate;  the  fact  is  neverthe- 
less undeniable  that  the  accumulation  of  funds  by  assess- 
ment societies  was  from  the  beginning  for  the  purpose  of 
preventing  what  was  seen  to  be  an  inevitable  increase  of 
cost. 

That  provision  is  being  made  more  and  more  nearly 
adequate  in  these  latter  years.  Not  always,  to  be  sure, 
because  the  office  it  is  to  perform  was  clearly  understood, 
with  all  its  peculiarities  and  magnitude,  but  because 
there  has  been  a  growing  sentiment  that  salvation  from 
otherwise  impending  ruin  lay  in  the  direction  of  accumu- 
lation. Any  excuse  which  an  assessment  society  manager 
could  in  recent  years  offer  his  members  for  drawing  from 
them  money  in  excess  of  the  current  cost  was  good  enough, 
so  long  as  it  had  the  desired  effect  of  making  them  willing 
to  pay  more  than  cost.  The  managers,  themselves, 
understood  in  a  vague  way  that  permanency  and  safety 
could  be  secured  only  by  accumulating,  if  a  level  price  or  a 
maximum  price  was  to  be  sustained. 


\ 


66 

It  might  have  been  better  if  the  fact  that  cost  increases 
had  been  boldly  proclaimed  and  a  corresponding  increase 
of  price  demanded.  But  it  must  be  borne  in  mind  that 
the  representatives  of  the  regular  companies  were  not  more 
insistent  upon  the  idea  of  level  or  but  slightly  fluctuating 
price  than  were  assessment  advocates.  Indeed,  the 
latter  were  the  more  consistent  in  many  respects,  for  they 
pooh-poohed  the  idea  of  increasing  cost  so  far  as  a  large 
body  of  men  was  concerned;  the  "new  blood"  would  take 
care  of  that.  On  the  contrary,  the  former,  while  talking 
loudly  of  a  level  premium  as  the  only  true  sort,  argued 
continually  that  the  cost  increased.  Consequently,  neither 
party  to  the  contention  was  ready  to  accept  the  idea  of  an 
increasing  price  to  correspond  to  the  increasing  cost. 
/  The  regular  companies  could  see  no  safety  except  in 
tremendous  accumulations,  even  if  the  premiums  were 
entirely  accurate  and  consequently  adequate.  The 
assessment  societies  bitterly  resented  any  reference  to  the 
theory  that  the  cost  inevitably  increases. 

When  the  veteran  actuary,  Sheppard  Homans,  author 
of  the  contribution  plan  of  dividing  surplus,  which  is 
the  only  just  plan,  separated  himself  from  the  Mutual 
lyife  Insurance  Company,  of  New  York,  which  he  had 
honored  with  his  brilliant  talents  and  earnest  labors  for 
many  years,  he  did  so  because  of  a  principle.  The  whole 
transaction  was  creditable  to  him  and,  though  the  power  of 
proxy- votes  left  President  Winston  in  command,  it  was 
everywhere  recognized  by  thinking  men  that  the  old 
actuary  was  right.  When  a  man  has  struggled  for  the 
right,  though  he  seem  to  be  defeated,  he  will,  for  a  time 
at  least,  rise  above  the  sordid,  so-called  practical  consid- 
erations which  ordinarily  govern  men  and  see  and  act 
with  clearer  insight  into  the   fundamental  truths  which 


67 


are  the  very  basis  of  the  truly  practical.  Thus  it  was 
with  Mr.  Horaans.  He  had  long  since  comprehended 
the  fact  that  there  is  an  increasing  cost  of  insurance  as 
the  age  and  hazard  increase  and  that  the  subterfuge  of 
a  level  premium,  constructed  by  equalizing  this  increas- 
ing cost,  concealed  but  did  not  alter  the  fact  of  the  increase. 
He  was  also  familiar  with  the  assessment  revolt  against 
the  refusal  of  the  regular  companies  to  furnish  insurance 
at  current  cost.  Perhaps  more  than  any  living  person, 
he  understood  the  nature  and  significance  of  that  revolt. 
He  was  not  a  worshipper  of  mere  size  in  a  company;  he 
deemed  that  company  most  excellent  which  most  efii- 
ciently  and  economically  ministered  to  the  wants  of  the 
insured.  And  the  result  of  his  meditations  upon  all  these 
things  and  many  more  was  the  introduction  of  the  natural 
premium  or  annually-renewable  term  policy  of  insurance. 
With  all  the  faults  of  the  system  as  it  was  presented, 
this  invention  was  one  of  the  most  important  in  the  history 
of  life  insurance  and  deserves  to  be  ranked  side  by  side 
with  his  chief  glory,  the  contribution  plan  of  dividing  sur- 
plus. For  the  first  time  the  fact  that  the  cost  of  insurance 
increases  was  announced  clearly  and  unmistakably.  But 
the  announcement  was  less  and  less  clear,  the  further  one 
got  from  the  personal  presence  of  the  great  actuary. 
Unfortunately,  in  making  his  premium  he  had  shown 
such  deference  for  the  so-called  conservative  ideas  of  his 
actuarial  brethren  and  fo];mer  associates  that  he  loaded 
the  premiums  about  as  many  dollars  as  are  added  to  the 
net  whole  life  premiums.  To  be  sure,  he  divided  this 
loading  into  expense  loading,  which  was  creditably  mod- 
erate, and  a  margin  for  accumulation.  But  that  was  just 
the  secret  of  the  whole  trouble.  A  really  consistent 
natural  premium  plan  could  not  harbor  the  idea  of  an 


68 

accumulation.  Consequently,  the  margin  must  be  given 
out  to  be  for  the  purpose  of  diminishing  the  cost  of  insur- 
ance in  after  years.  The  devil's  little  finger,  so  to  speak, 
was  permitted  to  remain.  Owing  to  very  favorable  mor- 
tality, the  actual  cost,  even  when  augmented  by  this  extra 
charge,  was  so  small  that  after  a  time  the  people  flocked 
in;  but  they  were  led  to  come  in  by  the  assurances  from 
agents  that  this  fund  would  prevent  the  actual  premiums 
increasing  materially.  In  other  words,  the  real  argument 
of  the  natural  premium  plan  was  lost  sight  of.  Hence, 
when  the  benefit  of  fresh  selection  wore  off,  the  people  no 
longer  confided  in  the  prescience  of  the  great  actuary  and 
flocked  out  again. 

But  the  idea  of  increasing  cost  was  brought  to  the  atten- 
tion of  assessment  managers  and  they  have  been  gradually 
tending  toward  plans  which  are  based  upon  that  fact  ever 
since.  They  have  in  many  ways  copied  Mr.  Roman's 
plans,  even  to  the  minor  mistakes,  and  the  words  *  'natural 
premium"  really  mean  "level  premium"  as  they  are  used 
by  most  of  them.  Yet  the  effect  upon  the  whole  has  not 
merely  been  to  cause  the  societies  to  collect  something 
more  than  the  mere  current  cost  of  insurance,  but  also  to 
cause  them  to  keep  their  accounts  with  members  on  the 
basis  that  the  cost  increases  yearly. 


69 


ARE  THE  EQUATED  RATES  ADEQUATE? 

Regular  life  insurance  companies  aim  to  fix  the  rates 
which  they  charge  at  a  point  which  makes  their  ade- 
quacy unquestionable.  This  is  certainly  necessary,  since 
it  is  their  custom  to  guarantee  the  rates,  even  in  the  case 
of  mutual  companies.  The  practice  at  least  is  unanimous 
in  this  country  where,  as  has  already  been  explained,  tho 
use  of  a  fixed  or  flexible  premium  determines  whether  a 
society  shall  be  considered  regular  or  assessment.  It  is 
clearly  proper  to  make  the  premium  high  enough  to 
cover  all  possible  contingencies  when  the  privilege  oi 
correcting  any  errors  in  that  regard  is  withheld. 

But  when  the  society  reserves  the  right  of  adjusting 
the  premium  to  the  facts  when  they  are  ascertained,  the 
case  is  different.  Then  it  is  proper  to  provide  for  all 
probable  contingencies  in  the  premium,  while  remote 
possibilities  may  be  referred  to  the  privilege  of  providing 
for  such  when  they  become  facts.  It  is  not  germane, 
therefore,  to  inquire  whether  the  equated  rates  of  those 
assessment  societies  which  recognize  the  .increasing  cost 
of  insurance,  but  seek  to  accommodate  it  to  a  level  price, 
are  sufficient  when  regarded  as  guaranteed  premiums. 
They  are  not  guaranteed  premiums,  and  the  tests  which 
are  proper  to  a  system  of  guaranteed  premiums  are 
utterly  out  of  place. 

No  merely  arbitrary  tests  will  do.  Constructive  in- 
solvency cannot  be  established.  In  theory,  a  regular  life 
insurance  company  is  insolvent  whenever  its  funds  are 
less  than  the  net  reserves  required  by  a  standard  table  of 


70 

mortality  and  an  agreed  rate  of  interest.  It  is  well 
known  that  this  theory  does  not  always  accord  with  the 
facts;  that  it  is  possible  for  a  company  to  be  actually 
solvent  when  found  insolvent  by  such  standards,  and 
that  it  is  possible,  though  not  probable,  that  a  company 
should  be  insolvent  when  found  solvent  by  these  stand- 
ards. But  the  theory  of  the  flexible  premium  system  is 
just  the  contrary,  namely,  that  a  society  using  that  sys- 
tem cannot  be  insolvent  except  when  actually  unable  to 
meet  current  demands,  for  there  is  a  condition  that  any 
inadequacy  of  premium  rates  can  be  made  good  by  sup- 
plemental assessment.  Now,  this  theory  is  quite  as 
likely  not  to  accord  with  the  facts  as  was  the  other. 
There  is,  no  doubt,  a  very  moderate  limit  to  the  use 
which  can  be  made  of  this  right  to  assess  without  calling 
down  upon  a  society  immediate  ruin. 

It  follows  that,  to  avoid  certain  dissolution,  a  society 
must  make  use  of  rates  which  are,  according  to  its  expe- 
rience or  to  the  experience  of  other  societies,  likely  to  be 
adequate,  so  that  the  right  of  assessment  may  be  spar- 
ingly employed,  or,  if  possible,  never  employed.  The 
society  which  proceeds  upon  the  basis  that  remedying  an 
inadequate  rate  can  be  put  off  to  a  distant  date  is  piling 
up  trouble  for  itself  and,  indeed,  may  be  already  demon- 
strably beyond  hope  of  recovery.  At  the  same  time  it 
is  evident  that  there  can  be  no  fixed  standards  by  which 
the  adequacy  of  the  premium  charged  by  any  particular 
society  can  be  judged.  The  standards  must  be  deduced 
from  the  experience  of  the  society  itself,  and,  before  that 
can  be  done,  the  only  thing  to  do  is  to  forecast  the  future 
of  the  society  by  reference  to  the  experience  of  other 
societies  which  have  operated  in  a  similar  field.  A  thor- 
oughly trained  actuary  who  possesses  a  spark  of  origin- 


71 

ality  should  be  able  to  formulate  entirely  reliable 
standards  from  the  mortuary  experience  of  a  society 
which  is  ten  years  old  or  more,  if  the  number  of  lives  is 
considerable  And  it  is  not  to  be  gainsaid  that  the  ade- 
quacy of  the  rates  charged  should  be  tested  at  frequent 
intervals  by  every  society  making  use  of  an  equated 
premium. 

To  the  tyro  in  life  insurance  it  always  seems  clear  that 
the  standard  tables  of  mortality  are  the  proper  means  of 
ascertaining  this  adequacy.  It  should  be  borne  in  mind 
that  the  standard  tables  were  devised  for  the  use  of  com- 
panies which  proceeded  on  the  opposite  basis,  namely, 
that  rates  should  be  made  to  cover  all  possible  contin- 
gencies. These  tables  do  not  fairly  represent  the  experi- 
ence of  any  single  company;  they  are,  to  be  sure,  drawn 
from  the  experience  of  several  companies,  but  they  are 
"adapted"  to  a  wonderful  degree  and  the  part  dealing 
with  higher  ages  is  purely  hypothetical.  So  much  have 
these  tables  been  loaded  in  order  to  cover  all  possible 
contingencies  that  Richard  Teece,  actuary  and  manager 
of  the  Australian  Mutual  Provident  Society,  in  summing 
up  the  results  of  an  investigation  of  their  mortality  expe- 
rience in  the  torrid  zone,  finds  that  the  deaths  among 
lives  accepted  as  impaired  were,  even  there,  less  by  nine 
per  cent  than  was  indicated  by  the  Healthy  Male  table. 
The  Healthy  Male  table  is  a  later  one  than  the  Actuaries' 
and  is  considered  more  accurate  and  reliable.  Mr.  Teece, 
who  is  himself  an  honored  member  of  both  the  Institute 
and  Faculty  of  Actuaries,  which  are  responsible  for  the 
tables,  is  moved  to  assert  that  in  his  judgment  no  sort  of 
reliance  can  be  put  upon  these  tables  as  measures  of  the 
mortality  to  be  expected  in  any  reasonably  well  con- 
ducted company . 


72 

It  is  clearly  impossible  for  us,  without  special  infor- 
taation  in  regard  to  each,  to  judge  of  the  adequacy 
of  the  rates  now  charged  by  the  principal  societies 
which  make  use  of  this  equated  premium  plan.  We 
might  be  able  to  form  some  sort  of  idea  of  the  probable 
adequacy  by  reference  to  the  actual  cost  of  insurance  for 
the  whole  term  of  life  in  well-conducted  regular  com- 
panies. And  it  may  appear  upon  mere  inspection  that, 
unless  something  little  short  of  miraculous  occurs,  the 
rates  in  use  by  certain  societies  are  certainly  wholly  in- 
adeqate.  But  the  importance  of  such  conjecture  should 
not  be  exaggerated  and  he  is  a  rash  man  who  because  of 
any  apparently  slight  discrepancy  prophesies  disaster  to 
these  societies. 

For  the  purpose  of  determining  in  a  general  way  whether 
the  rates  charged  will  be  equal  to  the  occasion,  it  may  be 
well  to  compare  them  with  the  very  best  terms  which 
regular  companies  have  been  able  to  give  when  operating 
on  the  purely  mutual  plan.  The  following  is  the  history 
of  the  lowest-cost  policy  which  has  come  to  my  attention: 
Age,  40.     Date  of  issue,  i860.     Plan,  Life. 

Total  gross  premiums,  32  years $1,015.36 

Less  dividends,  paid  annually 551-42 

Net  cost  for  32  years $463. 94 

which  is  an  average  of  almost  exactly  $14.50  per  annum. 
It  must  be  taken  into  account,  also,  that  the  cost  in  the 
earlier  years  was  far  beyond  this  average  and  an  accurate 
computation  would  make  the  average,  taking  into 
account  that  fact,  considerably  larger.  At  the  same  time, 
the  premium  after  the  dividend  was  deducted  was  during 
the  last  year  before  the  death  of  the  insured  much  under 
the  average   and   if  he    had  survived  to  age  100  it  is 


73 

reasonably  sure  that  the  average  net  cost  would  have  been 
lower.  Few  assessment  societies  write  policies  which  are  in- 
tended to  run  throughout  the  whole  course  of  life.  The 
premiums  are  supposed  to  be  calculated  so  as  to  cover 
the  average  hazard  for  a  long  term  of  years,  commonly 
the  period  of  probable  life  or  until  an  advanced  age.  At 
the  same  time,  it  is  the  opinion  of  the  officers  in  most 
cases  that  the  premiums  would  hold  good  if  the  insured 
should  choose  to  continue  throughout  life.  In  many  cases 
the  sufficiency  of  the  rates,  taken  as  probable  life  term 
premiums,  is  not  open  to  question  at  all.  It  will  be  seen 
by  reference  to  the  following  table  that  it  is  by  no  means 
impossible  that  some  of  the  societies  may  be  able  to  fur- 
nish the  insurance  for  whole  life  without  advancing  the 
rates.  In  this  table  the  annual  premium  is  given  at  age 
40,  the  proportion  thereof  which  may  be  used  for  expenses 
is  named  and  the  net  amount  available  to  pay  death- 
claims  derived  by  subtracting  the  expense  charge  from 
the  gross  premium: 

PREMIUM.  EXPENSE.  NET. 

Northwestern  Masonic  Aid  Assn. $19. 80  $3-00  $16.80 

Bay  State  Beneficiary  Association  17.40  5.00  12.40 

Chicago  Guaranty  Fund  Society.    17.28  5.00  12.28 

Connecticut  Indemnity  Assn 23.21  7.32  15.89 

Covenant  Mutual  Benefit  Assn...  20.04  4-00  16.04 

DesMoines  I^ife  Association 15.00  3.00  12.00 

Fidelity  Mutual  Life  Association.  21.89  4-00  17.89 

Franklin  Life  Association 16.40  3.60  12.80 

Industrial  Benefit  Association 13.50  2.70  10.80 

Massachusetts  Benefit  Association  20.04  ^-oo  14.04 

Mutual  Reserve  Fund  Life  Assn.   16.20  3.00  13.20 

National  Life  Association 23.06  6.00  17.06 

National  Life  Maturity  Co 21.44  7.14  14.30 

Northwestern  Life  Association...   18.64  4- 00  14.64 

Security  Mutual  Life  Association.  20.95  5-45  i5-50 

United  Life  Insurance  Association  16.20  4.00  12.20 


74, 


It  will  be  observed  that  there  is  the  very  greatest 
v?riety  in  these  figures.  While  the  plans  are  not  pre- 
cisely the  same,  it  may  be  safely  said  that  there  is  no 
such  variation  in  what  is  required  of  the  societies  as 
would  warrant  so  great  divergences.  About  one-half  of 
these  societies  take  all  the  first  year's  premium  beyond 
mortuary  requirements  to  pay  expenses  of  procuring 
business,  and  one  of  them  takes  all  of  the  premiums  for 
the  first  two  years  beyond  the  mortuary  requirements. 
Concerning  the  adequacy  as  premiums  for  probable  life, 
it  may  be  noticed  that  the  great  actuary,  Sheppard 
Homans,  considers  that  the  rate  of  his  company  can 
easily  be  held  level  throughout  life-expectancy,  which  is 
but  little  shorter  than  the  term  of  probable  life.  That  rate 
at  age  40  is  $17.20,  the  expense  portion  $4.00  and  the  net 
amount  available  for  loss-paying  purposes  is  $13.20.  His 
company  also  uses  all  the  first  year's  premium,  not 
actually  required  to  pay  losses,  for  initial  expenses. 

In  comparing  these  rates  with  the  net  average  cost  of 
the  regular  life  company's  policy  which  was  given,  it 
must  be  borne  in  mind  that  the  result  of  the  latter  was 
the  most  favorable  known;  that  the  conditions,  especially 
as  regards  interest,  are  not  likely  to  be  duplicated  and 
that  it  is  doubtful  whether  any  assessment  company  will 
do  as  well.  At  the  same  time  a  fair  conclusion  from  the 
comparison  is  that  it  is  not  impossible  for  certain  of  the 
societies  to  sustain  their  rates,  provided  great  care  is 
taken  not  only  to  keep  the  losses  within  bounds  but  also 
to  reserve  and  profitably  invest  all  unexpended  moneys  so 
as  to  insure  a  sufficient  fund  to  equalize  the  rate.  Fre- 
quent computations  of  the  experience  of  the  societies  and 
of  the  amount  which  should  be  on  hand  thus  become  of 
the  first  importance. 


75 


RE-INSURANCE  RESERVES. 

There  are  two  views  from  which  to  consider  reserves  in 
life  insurance.  One  is  from  the  standpoint  of  their  use, 
and  the  name  which  designates  this  is  re-insurance  re- 
serve. The  other  is  from  the  standpoint  of  their  source, 
and  the  name  which  designates  this  is  unearned  premium. 
The  regular  companies,  as  a  class,  have  a  clearer  concep- 
tion of  the  reserve  from  the  former  standpoint;  the  assess- 
ment companies,  as  a  class,  have  an  infinitely  clearer 
conception  of  reserve  from  the  latter  standpoint.  Regular 
companies  have  a  wholesome  fear  of  permitting  the  re- 
serves to  fall  below  a  safe  standard;  they  do  not  always 
so  dread  neglecting  to  render  to  each  policyholder  an 
account  of  the  manner  in  which  his  premium  has  been 
administered  for  his  benefit.  Assessment  companies  are 
frequently  blind  to  the  necessity  of  reserving  for  the 
purpose  of  covering  the  net  deficiency  of  future  premiums; 
they  are  seldom  blind  to  the  fact  that  each  member  has 
a  right  to  the  worth  of  his  money,  and  that  any  unex- 
pended balance  belongs  equitably  to  him.  It  must  be 
admitted  that  the  assessment  people  have  the  best  of  it, 
as  their  mistake  is  "of  the  head  and  not  of  the  heart,"  as 
the  old  phrase  has  it. 

Yet  the  assessment  companies  need  to  carefully  consider 
the  question  from  the  standpoint  of  the  use  of  reserves 
and  the  suflSciency  of  the  same;  for  in  the  solution  of  that 
lies  also  and  always  the  solution  of  the  problem  of  the 
adequacy  of  rates.  The  question  of  reserves  has  no 
necessary  connection  with  what  is  known  as  * '  legal  re- 


serve,"  which  is  indeed  a  re-insurance  reserve,  but  is 
computed  by  certain  mortality  tables  and  interest  or  dis- 
count rates.  The  table  of  mortality  and  the  rate  of 
interest  or  discount  are  both  selected  with  a  view  to 
making  the  solvency  of  companies  which  guarantee  their 
premiums  unquestionable.  A  company  which  does  not 
guarantee  its  premiums,  and  which  retains  the  right  to 
exact  a  higher  premium  if  necessary,  need  not  judge  its 
solvency  by  so  strict  a  standard;  it  is  entitled  to  greater 
latitude. 

Just  how  much  greater  is  a  matter  to  be  determined  for 
each  case.  If  the  mortality  of  the  society  is  approxi- 
mately equal  to  that  of  the  standard  tables,  they  should 
be  used.  If  there  is  reason  to  believe  that  the  mortality 
will  be  considerably  more  favorable,  that  should  be  taken 
into  account  and  a  more  favorable  table  employed.  If 
the  interest  seems  likely  to  be  considerably  higher  than 
four  per  cent,  that  rate  should  be  used  in  the  computa- 
tions which  is  thought  to  be  safely  probable. 

But,  whatever  the  standards  are  to  be,  after  they  have 
been  selected,  they  should  be  applied  to  test  the  suffi- 
ciency of  the  unearned  premium  as  a  re-insurance  reserve 
or,  in  other  words,  to  determine  whether  what  remains  of 
premiums  already  paid  in  will  supply  the  deficiencies  of 
future  premiums.  This  is  a  matter  of  fact,  as,  indeed,  sol- 
vency always  is.  The  assessment  societies,  as  a  class, 
have  an  accurate  understanding  of  the  nature  of  over-pay- 
ment beyond  the  current  requirements  of  insurance.  By 
inspection  of  their  mortality  and  investment  experience,  it 
ought  to  be  easily  possible  for  them  to  ascertain  whether 
this  amount  will  be  enough  to  make  good  the  amounts 
which  future  premiums  will  fall  short.  If  the  amount  is 
clearly  too  small,  that  is  evidence  that  the  premium  is 


77 

also  too  small;  for,  in  the  first  place,  the  shortage  is 
occasioned  by  the  fact  that  there  was  not  enough  left  of 
the  premiums  after  paying  losses  and  expenses  and,  in 
the  second  place,  the  shortage  can  only  be  remedied  by 
increasing  future  charges  enough  to  clean  up  the  de- 
ficiency. 

It  is  of  the  first  importance  that  this  valuation  be 
regularly  and  frequently  made;  it  is  of  even  greater 
importance  in  an  assessment  company  than  in  a  regular 
company.  In  the  latter,  if  the  premiums  are  known  to 
be  adequate  and  the  company  suffers  no  unusual  misfor- 
tunes, it  is  practically  certain  that  the  over  payment 
beyond  current  needs  will  accumulate  a  sum  in  excess  of 
re-insurance  requirements.  If  there  is  no  distribution  of 
surplus,  there  is  no  especial  occasion  for  very  fre- 
quent valuations.  On  the  contrary,  in  an  assessment  society 
which  hopes  to  sustain  a  level  premium  for  a  term  of 
years  or  for  life,  the  very  adequacy  of  the  premium  is 
continually  a  matter  to  be  tested.  If  there  is  delay,  there 
is  always  a  possibility  that  the  deficiency  may  not  be  dis- 
covered until  it  is  too  large  to  be  made  good  by  increasing 
the  rate,  because  levying  the  larger  rate  would  result  in  a 
sudden  and  considerable  exodus  of  members. 

The  right  of  increasing  the  premium  is  a  valuable  safe- 
guard only  providing  it  is  used  sparingly  and  in  time.  It 
is  absolutely  worthless  if  the  insurance  proceeds  with  a 
glaringly  inadequate  premium  up  to  a  late  hour  and  then 
recourse  is  had  to  a  drastic  increase  of  premium.  Just 
that  is  what  should  by  all  means  be  avoided  and  yet  it  is 
precisely  what  many  assessment  societies  are  relying  upon 
while  they  drift  along,  dimly  conscious  that  something 
ought  to  be  done.  Nothing  short  of  continual  vigilance 
will  suffice  when,  instead  of  charging  a  premium  which  is 


78 

certainly  safe,  as  is  the  custom  of  the  regular  companies, 
a  society  is  trying  to  see  with  how  low  a  premium  it  can 
operate. 

Assessment  actuarial  work,  while  it  may  seem  simpler 
to  the  tyro,  is  really  much  more  complex  and  difficult 
than  work  for  a  company  the  sufficiency  of  whose  pre- 
miums is  not  in  doubt.  In  many  cases  the  rates  are  only 
designed  to  cover  insurance  for  a  long  or  short  term — 
sometimes  so  short  as  a  single  year — and  their  inadequacy 
as  whole-life  level  premiums  is  evident  from  mere  inspec- 
tion. At  other  times  the  rates  may  be  found  adequate 
even  by  the  legal  standard  for  a  long  term  for  which  they 
were  computed;  their  adequacy  as  whole-life  rates  can  be 
determined  only  by  computations,  similar  to  those  which 
honest  actuaries  make  in  estimating  surplus  accumula- 
tions for  regular  companies.  In  short,  the  actuary  has  a 
very  complex  task  before  him,  which  calls  for  his  highest 
skill  and  ma turest  judgment. 

If  this  work  is  performed  frequently  and  with  care,  it 
ought  to  be  possible  to  forecast  deficiencies  of  future  pre- 
miums in  time  to  prepare  for  them  by  comparatively 
trifling  increase  in  the  original  rates;  provided,  of  course, 
that  the  original  rates  were  not  wildly  out  of  the  way. 
That  should  not  be  the  case  when  competent  actuaries 
have  anything  to  do  with  their  computation. 


79 


VALUATIONS.     COMMERCIAL  SOLVENCY. 

Nothing  is  more  imperfectly  understood  and  few  things 
are  more  difficult  to  understand  than  the  procedure  to 
value  the  resources  and  liabilities  of  an  assessment  society. 
The  fact  is  that,  owing  to  the  great  variety  of  plans,  there 
are  almost  as  many  methods  of  procedure  as  there  are 
societies.  At  the  same  time,  certain  rules  for  general 
guidance  may  be  set  down.  These  rules  are  founded 
upon  the  facts  in  each  case;  there  is  nothing  arbitrary 
about  them  and  their  application  should  not  be  arbitrary. 

The  first  rule  iS  that  all  actual,  present  assets  are  avail- 
able resources,  to  be  first  balanced  against  liabilities  al- 
ready matured  or  which  will  mature  before  any  other 
portion  of  the  resources  can  be  reduced  to  possession  and 
to  currency.  This  is  what  is  sometimes  known  as  the 
test  of  "business  solvency,"  a  somewhat  unfortunate  ex- 
pression, which  means  no  more  than  that,  when  you 
know  nothing  about  the  real  state  of  affairs,  you  cannot 
adjudge  a  firm  insolvent  until  it  actually  finds  itself  un- 
able to  pay  matured  liabilities.  It  is  true  that  the  fact 
of  so-called  ''business  solvency"  is  no  real  evidence  what- 
ever that  a  firm  or  company  is  really  solvent;  on  the 
other  hand,  what  might  be  called  in  the  same  manner 
"business  insolvency,"  that  is,  the  state  of  not  being  able 
to  pay  currently  matured  liabilities,  is  usually  pretty  good 
evidence  of  actual  insolvency.  Especially  is  this  true  of 
insurance  societies,  realization  upon  their  deferred  re- 
sources usually  depending  upon  the  faith  of  their  members 


80 

in  the  soundness  of  the  societies.  Emphasis  needs  to  be 
cast  upon  this  as  by  the  sophistry  of  mathematicians  it  is 
sometimes  possible  to  triumphantly  demonstrate  the  solv- 
ency of  societies  which  cannot  possibly  ,do  business  at  all, 
owing  to  immediate  want  of  available  funds.  One  of  the 
things  which  attracted  the  notice  of  the  great  EHzur 
Wright  was  the  fact  that  by  the  calculations  of  mathema- 
ticians, as  then  employed  by  very  eminent  actuaries,  a 
company  might  be  shown  to  have  millions  of  dollars  of 
surplus  when,  as  a  matter  ot  fact,  its  immediate  obliga- 
tions exceeded  its  available  assets  by  hundreds  of  thou- 
sands of  dollars.  The  key  to  this  anomaly  is  that  in 
order  to  estimate  solvency  it  is  necessary  to  estimate  not 
only  the  amount  of  resources  and  the  amount  of  liabilities, 
but  also  to  ascertain  whether  the  resources  can  be  realized 
on  in  time  to  meet  the  maturing  liabilities.  From  a 
mathematical  standpoint,  for  instance,  it  would  be  possi- 
ble to  insure  men  for  premiums  to  be  paid  after  the  ex- 
piration of  the  term  of  the  insurance  and  only  by  the 
survivors.  From  a  practical  standpoint,  this  is  the 
sheerest  folly,  for  the  insurance  must  be  paid  out  of  the 
proceeds  of  the  premiums. 

It  may  not  seem  so  foolish  when  the  term  is  short,  such 
as  one  month  or  even  three  months  or  the  somewhat  in- 
definite time  * 'until  the  next  assessment;"  but  the  differ- 
ence is  one  of  degree  and  not  one  of  kind.  That  the  sys- 
tem of  collecting  after  the  losses  have  been  incurred  is  a 
bad  one  is  evident  if  one  merely  takes  into  account  that 
persons  who  fail  to  pay  an  assessment  have  received  what 
they  have  not  paid  for;  namely,  insurance  from  the  date 
of  the  last  assessment.  If  you  were  to  propose  to  furnish 
insurance  for  a  term  for  nothing  in  a  mutual  company,  it 
could  not  but  be  clear  that  this  would  be  at  the  cost  of 


81 

other  members.  Whatever  may  be  the  fiction  upon  which 
the  management  of  an  association  proceeds,  it  is  a  fact 
that  assessments  to  be  called  are  not  available  to  pay 
obligations  which  have  already  matured  or  which  will 
mature  before  the  assessment  can  be  levied  and  collected. 
An  institution  which  is  dragging  along  a  lot  of  unpaid 
and  overdue  liabilities  has  no  right  to  be  considered  solv- 
ent, though  its  resources  may  be  calculated  so  as  to 
greatly  exceed  all  matured  and  immature  obligations. 
Such  an  institution  is  continuing  to  do  business  at  all 
only  by  the  sufferance  of  its  creditors.  Several  assess- 
ment societies  are  chronically  in  this  situation;  some  few 
of  them  keep  in  this  situation  as  a  matter  of  principle,  as 
their  managers  would  say.  They  practice  ''hat-passing" 
as  a  custom  of  collecting  assessments  after  the  losses  have 
been  incurred  has  come  to  be  known.  But  in  most  cases, 
societies  get  in  arrears  in  the  payment  of  matured  obliga- 
tions through  the  disinclination  of  their  managers  to 
correct  the  inadequate  rates  which  they  have  endeavored 
to  sustain.  In  any  case,  and  whatever  may  be  the  occa- 
sion, the  society  which  permits  a  solitary  matured  liabil- 
ity to  remain  unpaid  for  want  of  funds  has  no  reasonable 
claim  to  be  accounted  solvent. 

The  first  rule,  then,  as  amended,  should  read:  The 
immediately  realizable  funds  constitute  the  present  assets 
which  should  balance  the  matured  liabilities  and  those 
which  will  mature  before  corresponding  resources  become 
available,  such  as  losses  before  the  date  of  the  next  as- 
sessment. Unless  an  association  can  show  that  its  funds 
will  meet  these  obligations,  it  must  be  pronounced  com- 
mercially insolvent. 

In  many  cases  it  is  not  possible  to  proceed  further  in 
the  computation.     The  only  contract  of  the  society  is  to 


82 

furnish  current  insurance,  the  cost  to  be  apportioned 
among  the  members  in  a  certain  way.  While  this  method 
of  apportionment  may  be  so  fatally  defective  that  ulti- 
mately ruin  must  ensue,  it  is  not  easy  to  so  demonstrate 
that  as  to  calculate  the  degree  of  insolvency.  In  valua- 
tions, we  can  only  take  the  contracts  as  they  stand;  as 
they  stand,  they  imply  a  balance  of  future  obligations, 
the  members  being  both  creditors  and  debtors  in  equal 
amount.  In  cases  where  societies  make  no  promises  to 
their  members  concerning  future  insurance,  further  than 
that  its  cost,  which  is  to  be  currently  met,  shall  be  ap- 
portioned according  to  certain  pre-agreed  ratios,  there  can 
be  no  valuation  of  future  receipts  and  disbursements, 
which  are  presumed  to  balance.  Any  criticism  of  such 
plans  must  be  directed  to  defects  of  system. 

Of  course,  where  societies  have  agreed  to  reserve  cer- 
tain sums  for  certain  purposes,  they  should  be  held  to 
such  agreements  and  all  accumulations  of  this  sort  are  of 
the  nature  of  liabilities.  In  many  cases  these  accumula- 
tions are  purely  supernumerary  and  might  be  dispensed 
with;  so  far  as  the  actual  liabilities  are  concerned  they  are 
surplus,  which  would  be  returnable  to  the  insured  after 
all  other  obligations  are  met.  But  the  accumulation  has 
been  made  under  a  definite  understanding  and  to  impair 
the  promised  accumulation  is  to  disregard  that  under- 
standing. This  matter  deserves  particular  attention  as 
one  of  the  first  temptations  which  is  presented  to  the 
assessment  manager,  when  confronted  by  losses  in  excess 
of  his  short-sighted  estimates,  is  to  bridge  over  what  he 
optimistically  calls  "a  temporary  increase  in  the  death- 
rate"  by  trenching  upon  funds  which  have  been  accumu- 
lated under  some  agreement  for  special  reserve.  His 
object  in  doing  this  is  usually   to  avoid  letting  the  mem- 


83 

bers  know  of  his  predicament.  The  nature  of  his  pur- 
pose, alone,  is  enough  to  indicate  the  propriety  of  holding 
him  to  account  for  the  unimpaired  reserve.  As  the  second 
general  rule,  it  may  be  stated  that  every  special  agree- 
ment for  reserve  should  be  strictly  enforced  in  estimating 
solvency.  To  balance  this  liability,  invested  or  immedi- 
ately available  assets  may  be  used,  but  not  contingent 
assets,  for  the  reason  that  the  sums  to  be  reserved  have 
actually  been  paid  in  and  should  be  in  hand  in  funds  or 
securities. 


84 


VAI^UATIONS.    UIvTIMATK  SOI.VENCY. 

The  valuations  of  the  ultimate  resources  and  liabilities 
of  an  assessment  society  is  a  matter  of  much  greater 
delicacy  than  the  process  of  valuing  a  regular  company 
according  to  the  inflexible  standards  now  in  use;  and 
this  is,  principally,  because  those  standards  are  inflexible. 
Whether  the  mortality  of  a  regular  company  is  greater 
or  less  than  according  to  the  table,  it  is  the  custom  to 
employ  that  as  an  infallible  yardstick;  consequently,  it 
is  entirely  possible  for  one  company  to  be  declared 
insolvent  when  perfectly  able  to  meet  its  liabilities,  and 
for  another  to  be  declared  solvent  when  in  fact  certain  to 
default  in  its  engagements.  The  same  inflexible  char- 
acter is  also  found  in  the  interest  and  expense  factors 
used  in  these  valuations. 

Such  a  situation  is  not  desirable  for  any  sort  of  a 
company  or  society;  it  receives  a  measure  of  justification 
in  the  case  of  regular  companies  from  the  circumstance 
that  the  companies  cannot  help  out  inadequacies  of 
premium  by  increasing  the  payments  of  their  policy- 
holders. Hence  it  is  the  part  of  prudence  for  such 
organizations  to  judge  themselves  by  standards  which 
are  more  stringent  than  the  facts  would  otherwise 
demand.  But  there  can  be  no  justification  in  the  case  of 
assessment  companies;  it  is  just  their  purpose  to  call  no 
more  from  their  members  than  shall  be  necessary.  As  a 
safeguard  against  possible  inadequacy  they  reserve  the 
right  to  increase  this  payment   of    the    policyholders. 


83 

Consequently,  the  standards  by  which  their  resources 
and  liabilities  must  be  measured  should  accord  in  each 
case  as  nearly  as  possible  with  the  facts  in  each  case. 

In  approaching  this  subject,  certain  premises  should 
be  firmly  fixed  upon.  The  first  in  order  of  importance 
is  that  the  valuation  should  in  its  first  stages  proceed  on 
the  basis  that  no  assessment  is  to  be  made.  The  fact 
that  the  right  of  assessment  is  merely  a  safeguard  to 
adjust  trifling  errors  or  variations,  and  by  no  means  a 
stafi"  upon  which  a  badly-impaired  society  may  lean,  has 
already  been  more  than  once  adverted  to;  it  will  bear 
repeating,  however.  But,  even  were  this  not  so,  it  is 
evident  that  if  the  rates  are  fixed  at  so  low  a  figure  that 
it  is  at  once  clear  that  they  will  not  support  the  insurance, 
then  the  ofiice  of  the  power  of  further  assessment  would 
be  not  to  supply  a  possible  deficiency,  but,  instead,  a 
certain  and  ascertainable  deficiency,  and  it  would  be 
proper  to  estimate  just  what  assessments  would  need  to 
be  levied  and  at  what  times.  In  fact  the  figures,  approx- 
imate of  course  but  reasonably  reliable,  might  be 
incorporated  in  the  policies,  and  they  ought  to  be,  lest 
the  insured  expect  the  price  to  remain  level. 

The  first  thing,  then,  to  do  in  valuing  the  resources  and 
liabilities  of  an  assessment  office  is  to  determine  as  nearly 
as  may  be  possible  whether  its  premiums  are  adequate 
according  to  its  own  experience,  if  it  be  sufficiently  exten- 
sive, or  according  to  the  experience  of  other  companies 
doing  an. analogous  business.  If  the  premiums  are  not 
found  to  be  adequate  you  set  forth  with  an  apparent  defi- 
ciency, and  the  writing  of  each  fresh  policy  increases  the 
amount  of  the  deficiency.  If  the  amount  is  small  and 
tne  factors  used  in  the  computation  are  conservative,  the 
doubt  maybe  resolved  in  favor  of  the  society;  for  it  must 


86 

ever  be  borne  in  mind  that  it  is  tlie  intention  to  keep  the 
price  as  low  as  possible.  If  the  deficit  is  considerable  the 
wisest  course  is  to  make  the  increase  which  the  rules 
authorize  as  soon  as  possible.  There  is  no  right  of  assess- 
ment, just  as  there  is  no  stock  capital,  which  can  be  com- 
pared with  adequate  premiums  as  a  resource. 

Having  ascertained  the  adequacy  or  inadequacy  of  the 
premiums,  a  balance  should  be  struck  between  the  future 
'  mortuary  premiums  discounted  and  the  future  death  losses 
discounted.  The  society  should  have  in  hand,  in  addition 
to  cash  assets  sufficient  to  cover  current  liabilities, 
invested  assets  at  least  equal  to  the  difference  between 
•  the  discounted  death-losses  and  the  discounted  premiums. 
This  is  the  reserve,  which  should  be  on  hand  for  two  rea- 
sons, first,  because  the  future  premiums  will  fall  short 
that  much,  even  though  adequate,  and  second,  because 
the  past  premiums,  if  adequate,  have  left  a  surplusage  of 
that  much.  It  is  foolish  management  to  rebate  this 
reserve  when  once  collected;  it  is  criminal  management  to 
have  turned  it  to  other  uses  without  the  knowledge  of 
the  insured,  especially  if  this  is  done  for  the  purpose  of 
hiding  the  inadequacy  of  the  premiums  and  to  put  off  the 
evil  day  when  the  policyholders  and  the  managers  must 
come  face  to  face. 

At  the  same  time,  the  tyro  must  learn  to  discriminate 
between  the  gravity  of  a  deficit  in  invested  assets  which 
may  seem  very  considerable  and  of  a  deficit  in  premiums 
which  may  seem  comparatively  trifling.  A  very  small 
addition  to  the  premiums  may  be  sufficient  to  cover  a 
very  large  apparent  deficit  in  invested  assets.  Often, 
indeed,  the  most  important  result  of  uncovering  this 
deficit  is  to  make  known  the  cause  of  it,  which  is  usually 
either  the  selfish  extravagance  or  the  moral  cowardice  of 


87 

managers.  But  inadequate  premiums  are  much  more 
serious,  much  more  difficult  to  make  good,  especially  if 
the  society  has  been  long  in  operation;  and  not  the  least 
of  the  difficulty  arises  from  the  necessary  result  that  the 
invested  assets  are  also  deficient.  For,  as  has  been  said, 
inadequate  premiums  render  it  impossible  to  accumulate 
a  sufficient  reserve. 

When  all  of  this  has  been  accomplished,  and  as  there 
are  no  prepared  tables  to  act  as  charts  and  compasses  in 
threading  this  wilderness  the  task  if  well  done  will  have 
cost  much  labor,  it  yet  remains  to  determine  whether  the 
right  of  further  assessment  will  actually  serve  to  fill  the 
gap.  Of  course,  if  the  premiums  have  been  found 
adequate  and  the  reserves  sufficient,  there  is  no  such 
task  to  perform.  But  if  the  contrary  is  true,  the  problem 
may  be  very  vexed  and  seemingly  impossible  to  solve. 
A  few  simple  principles  may  be  laid  down  for  guidance. 
One  is  that  the  earlier  the  increase  is  made,  the  easier  it 
will  be  to  make  it.  This  is  for  several  reasons;  there  is 
not  so  great  a  deficiency  to  make  good;  the  insured  have 
not  become  so  accustomed  to  view  a  certain  premium  as 
their  proper  payment;  those  who  retire  because  unwilling 
to  pay  the  advanced  premium  will  not  have  so  good  a 
ground  for  complaint.  One  of  the  singular  things  about 
assessment  insurance  is  that  those  who  have  for  years 
had  their  insurance  at  less  than  cost  because  of  the 
cowardice  of  managers^  are  always  loudest  in  their 
denunciations  when  the  price  is  increased,  because 
custom  comes  to  have  force  of  law.  Another  principle 
which  it  is  well  to  bear  in  mind  is  that,  if  the  member- 
ship will  not  bear  increasing  to  an  adequate  rate  now, 
it  never  will;  partial  increase,  with  the  idea  of  gradua- 
tion so  that  the  increase  will  not  be  felt,  is   a   farce.     A 


88 

thing  to  be  avoided  also,  both  because  of  its  unfairness 
and  because  few  societies  have  so  much  better  experience 
than  others  that  they  can  afford  to  make  new  members 
carry  the  old,  is  to  increase  for  new  members  and  leave 
the  old  to  their  former  premiums.  The  question  ot 
whether  the  right  of  assessment  can  offset  the  deficienc}^ 
should  be  met  squarely. 

Perhaps  this  should  have  been  said  at  the  beginning 
instead  of  at  the  close,  namely,  that  it  is  useless  to  begin 
on  any  of  these  computations  if  the  society  does  not  have 
present  resources  sufficient  to  meet  present  demands;  is 
not  solvent  by  the  standards  of  business  solvency.  If 
this  condition  of  default  is  owing  to  disinclination  to  levy 
assessments  to  meet  current  demands,  that  is  of  itself  a 
dangerous  symptom.  That  levy  should  be  made  and 
collected  before  any  computation  of  ultimate  solvency  is 
entered  upon.  The  peculiarities  of  actuarial  computa- 
tions make  it  entirely  possible  to  figure  a  society  out  sol- 
vent which  cannot  pay  losses  already  due  and  proceeding 
to  judgment;  this  is  owing  to  the  fact  that  all  the  pro- 
cesses are  intended  for  the  balancing  of  future  obligations 
and  resources,  and  not  of  calculating  present  ability  to 
liquidate. 


89 


LIMITED-PREMIUM    POLICIES. 

Nothing  could  better  illustrate  how  far  assessment 
insurance  has  wandered  from  the  original  plan  than  the 
fact  that  there  are  associations  and  fraternities  now  which 
undertake  to  limit  the  premium.  Indeed,  so  easy  is  it 
for  the  over-confident  to  go  astray  in  these  matters  that 
the  astonishing  spectacle  is  presented  of  an  institution, 
grounded  upon  the  idea  of  increasing  cost  and  every 
member  standing  on  his  own  base,  adopting  at  the  same 
time  the  idea  of  limiting  premiums  without  making  any 
provision  whatever  for  sustaining  the  insurance  after  the 
payments  ceased.  The  National  Union  has  been  several 
times  mentioned  in  these  papers  as  a  promising  example 
of  what  reason  and  common  sense  can  accomplish  by 
means  of  fraternities;  its  system  increases  the  price  of 
insurance  each  year  even  more  rapidly  than  the  actual 
cost  increases.  Still  it  undertook  to  limit  the  payment  of 
premiums  to  age  65,  for  the  reason,  as  a  high  official 
said,  that  the  members  thought  it  was  a  little  hard  to 
keep  on  paying  throughout  old  age;  and,  although  no 
more  was  collected  from  the  whole  membership  before 
that  age  is  attained  than  was  necessary  for  current  needs, 
no  provision  was  made  to  sustain  the  insurance  which  the 
insured  no  longer  sustained  by  his  payments.  The 
scheme  was  afterwards  found  to  be  illegal  and  so  aban- 
doned; but  even  now  the  fraternity  is  releasing  the 
insured  from  the  increase  of  rate  when  he  reaches  65. 


90 

This  is  a  fair  example  of  the  recklessness  with  which 
some  association  managers  treat  the  question  of  limiting 
payments.  Perhaps  few  others  have  gone  so  far  as  to 
make  no  provision  whatever;  but  it  is  very  common  to 
find  that  a  ludicrously  insufiicient  provision  is  being 
made.  The  president  of  the  ill-starred  Total  Abstinence 
Life  Association  once  undertook  to  defend  in  the  pages  of 
a  magazine  the  position  that  an  addition  of  twenty  per 
cent  to  the  current  mortality  cost  for  reserve  purposes 
was  more  than  ample  to  sustain  the  insurance  paid-up 
after  twenty  years.  Within  four  years  the  association 
was  trenching  on  this  reserve  quota  to  pay  losses  and 
soon  found  it  impossible  to  meet  its  obligations  even  by 
expending  all  the  receipts  and  accumulations.  It  was 
but  following  in  the  footsteps  of  another  association 
within  which  it  originated  and  which  it  followed  out  of 
existence.  In  turn  it  is  succeeded  by  more  than  one 
other.  Just  now  the  National  Reserve,  with  headquar- 
ters at  Kansas  City,  a  very  enterprising  management,  and 
a  large  patronage  throughout  the  West  and  Southwest, 
is  attempting  to  win  on  the  same  basis,  and  the  ingenious 
manager  has  figured  out  a  defense  of  his  idea  on  the  plea 
that  while  only  one-half  die  during  probable  life  no  one 
survives  that  term. 

The  very  idea  of  limited-premiums  is  at  first  sight 
repugnant  to  the  assessment  plan,  which  is  based  on  the 
idea  of  not  limiting  them.  Indeed,  by  some  superficial 
insurance  writers  the  distinction  between  regular  and 
assessment  insurance  has  been  made  to  be  merely  that 
the  first  does  and  the  second  does  not  limit  the  premiums. 
It  is  true  that  this  is  the  usual  distinction,  but  it  is  quite 
possible  for  an  assessment  association  to  transfer  the 
uncertainty  from  the  payments  to  be  made  to  the  benefit 


91 

to  be  received,  unless  there  is  a  law  to  the  contrary.  In 
other  words,  if  an  association  is  not  to  be  held  to  the 
legal  reserve  test,  it  must  be  indefinite  either  as  to  the 
amount  to  be  collected  or  the  amount  to  be  paid,  or 
both.  An  association  which  definitely  limits  the  pay- 
ments may  escape  by  leaving  the  amount  of  benefit 
undetermined. 

But  there  are  those  which  seem  to  guarantee  both — at 
least  the  number  of  payments  are  definite,  and  both  by 
the  contract  and  by  the  law  the  association  can  be  held 
for  the  whole  sum  insured.  It  will  commonly  be  found, 
however,  that  while  the  policy  contemplates  sustaining  a 
prepaid  insurance,  it  is  not  necessarily  a  paid-up  insur- 
ance, and  if  the  provision  proves  inadequate  the  member 
will  be  liable  in  one  form  or  another  for  the  deficiency. 
He  can  be  assessed  for  it,  or  the  insurance  may  be  scaled 
to  correspond  with  the  facts,  or  the  deficit  may  be  deducted 
with  interest  from  any  settlement  under  the  policy.  There 
may  be  other  devices  also  to  avoid  the  possibility  of  the 
provision  proving  inadequate  and  thus  swamping  the 
association. 

Where  these  provisions  are  found  there  is  generally  an 
association  which  is  desirous  of  fitting  its  methods  to  the 
advanced  ideas  of  the  leading  thinkers  among  assessment 
institutions.  It  is  likely  to  be  the  case  that  the  same 
caution  has  been  exhibited  in  attempting  to  make  a  provi- 
sion amply  sufiicient  to  sustain  the  insurance  when  the 
premium-paying  period  is  past.  To  be  sure,  the  ideas  ot 
some  of  these  managers  as  to  what  is  ample  may  be  based 
on  wrong  reasoning  and  in  many  cases  the  provision  will 
surely  prove  pitifully  inadequate.  But  an  earnest  effbrt 
is  being  made  to  grapple  with  the  problem  and  rather 
rapid  progress  is  making  toward  its  solution.     One  or 


92 

more  of  the  associations  now  reserves  a  larger  amount  to 
sustain  paid-up  insurance  than  do  the  regular  companies. 
But,  though  as  much  as  fifteen  or  twenty  per  cent  less 
were  reserved  than  the  regular  companies  reserve,  there 
would  be  no  occasion  for  derisive  criticism  since,  in  this 
as  in  all  things,  it  is  the  assessment  idea  to  provide  for 
probable  requirements,  reserving  the  right  to  call  for 
more  or  pay  less  instead  of  providing  for  all  possible  con- 
tingencies in  the  reserve  itself. 

It  is,  perhaps,  hardly  necessary  to  say  that  any  pro- 
vision which  is  agreed  to  be  made  should  be  made  and 
the  obligation  to  make  it  should  constitute  a  legal  liability 
which  the  insurance  departments  would  recognize  and 
the  courts  enforce.  Such  is  not  the  case  at  present  in  the 
principal  States  and  the  consequences  cannot  fail  to  be 
evil.  An  association  which  purposes  dealing  fairly  with 
its  members  will  do  well  to  hold  itself  liable  whether  the 
law  seems  to  do  so  or  not  and  to  make  it  impossible  for 
these  reserves  to  be  impaired  without  that  fact  coming  at 
once  to  the  notice  of  the  members.  It  would  also  do  well 
to  discover  at  frequent  intervals  whether  the  assumptions 
upon  which  the  rates  were  based  and  the  provision  com- 
puted are  proving  adequate  to  cover  the  association's 
actual  experience.  It  is  impossible  to  discover  too  soon 
any  deficiency,  since  it  requires  a  less  addition  to  subse- 
quent premiums  to  remedy  the  error  the  earlier  the 
remedy  is  applied. 


93 


ENDOWMENTS. 

It  was  inevitable  that  the  apparent  success  of  certain 
associations  and  fraternities  in  furnishing  life  insurance 
on  the  flat  assessment  plan  should  embolden  certain  of 
the  blinder  of  its  advocates  to  attempt  furnishing  endow- 
ments also  on  that  plan.  This  reduced  the  whole 
conception  to  its  fundamental  absurdity,  and  a  very  large 
}3art  of  the  persons  who  are  confused  by  the  intricacies  of 
life  insurance,  and  thus  conceived  the  flat  assessment  plan 
to  be  feasible,  were  too  clear-headed  to  be  drawn  into  the 
scheme  of  assessment  endowments.  It  would,  indeed, 
seem  too  self-evident  that  a  sure  return  can  only  be  safely 
made  to  a  man  from  his  own  investment  and  its  interest 
for  anybody  to  go  astray  about  the  matter. 

But,  here  again,  as  in  the  very  origin  of  assessment 
insurance,  the  false  teachings  of  the  regular  companies 
in  foisting  upon  the  people  an  article  for  which  there  was 
little  demand,  when  presented  on  its  merits,  gave  the  cue 
for  the  new  movement.  For  many  years  it  has  been 
dinned  into  the  heads  of  buyers  of  insurance  that  big 
profits  could  properly  and  certainly  be  made  from  lapses 
and  that  investment  insurance  on  the  tontine  plan  would 
yield  much  greater  returns  than  would  the  money  at 
interest.  Results  have  proven  this  claim  to  be  fallacious 
and  after  a  brief  popularity  it  was  modified  and  it  is  now 
being  eschewed.  Recent  investigations  prove  beyond  a 
doubt  that  any  apparent  gains  from  this  source  are  more 


94 


than  compensated  by  the  increased  cost  of  obtaining 
insurances.  But  the  regular  companies  made  this  idea 
of  profits  from  lapses  respectable  and  gave  it  currency. 

This  furnished  the  thing  which  was  needed  to  make 
assessment  endowments  plausible.  The  objection  that 
whatever  was  paid  to  a  maturing  endowment  beyond  its 
own  contributions  and  interest  thereon  had  to  come  from 
some  other  person's  funds,  was  met  by  confession  and 
avoidance,  to  the  effect  that  this  excess  represented  for- 
feited contributions  by  lapsed  certificates.  Another 
source  of  profits  was  also  declared  to  be  the  accession  of 
new  members,  by  some  process  of  muddled  reasoning 
which  nobody  can  clearly  state;  for,  surely  if  anything 
is  clear,  it  is  clear  every  new  member  brought  into  the 
association  a  balancing  liability  and  resource.  But  the 
main  refuge  was  the  profit  from  lapses  theory. 

There  were  various  attempts  at  this  sort  of  thing  in  dif- 
ferent localities  throughout  the  nation,  but  until  the 
assessment  endowment  fraternities  of  Massachusetts 
sprang  up,  almost  in  a  day,  there  was  no  association 
which  assumed  sufficient  importance  to  attract  general 
notice.  These  associations  started  out  on  the  basis  of 
paying  endowments  on  certificates  in  numerical  order  and 
at  the  close  of  a  definite  term,  subject  to  right  of  assess- 
ment. Assessments  were  levied  throughout  the  term, 
but,  after  paying  once  began,  it  was  not  commonly  the 
idea  to  keep  any  considerable  reserve  on  hand;  instead, 
to  receive  and  pay  out  promptly.  Later,  the  idea  of  a 
reserve  was  introduced  in  order  to  give  an  appearance  of 
solidity  to  the  schemes.  But  at  all  times  it  was  the  plan 
to  mature  the  endowment  arbitrarily,  according  to  num- 
ber, without  any  regard  to  whether  its  contributions,  with 
interest  earned  thereon,  amounted  to  the  sum  paid  or  not. 


93 

The  first  orders  were  for  a  comparatively  long  term, 
seven  years  being  especially  popular.  But,  when  the 
fever  was  at  its  height,  terms  of  one  year  or  even  less, 
paying  $  [oo  for  $40,  were  popular  and  thousands  of  peo- 
ple were  led  to  believe  this  a  solid  and  profitable  means 
of  investing  funds.  The  country  was  afire  with  it  and 
everybody  was  considered  foolish  if  he  did  not  thus  lay 
the  foundations  for  his  fortune.  These  short-term  orders 
reached  the  end  of  their  rope  first  and  were  mowed  down 
by  hundreds;  but  the  long-term  orders  have  in  some  cases 
survived  until  a  very  recent  date.  The  Iron  Hall  and 
the  Order  of  Tonti  are  examples,  both  having  passed  out 
of  existence  within  the  past  two  years.  Only  the  other 
day  the  Indiana  courts  ordered  a  final  division  of  the 
funds  of  the  Order  of  Tonti  and  there  was  enough  to  pay 
25  cents  on  the  dollar  of  the  sums  paid  in.  This  was 
owing  to  the  reserve  system  which  had  prevented  the  total 
dissipation  of  the  funds. 

All  schemes  which,  while  they  defraud  the  people, 
bring  affluence  to  the  managers,  are  like  to  spring  up 
under  new  names  and  prey  upon  the  unsuspecting  for 
many  years  after  the  original  scheme  has  been  proved 
fraudulent  and  can  no  longer  be  successfully  floated. 
The  endowment  craze  is  no  exception  to  this  sweeping 
rule.  As  the  endowment  orders  went  out,  the  "bond 
company"  came  in,  with  its  numeral  and  multiple  plans, 
adding  confusion  to  confusion  and  still  harping  on  the 
gain  from  lapses.  This  plea  was  even  put  forward  by  com- 
panies which  reserved  nothing,  so  that  the  lapsing  of  a 
certificate  merely  meant  a  cessation  of  income  from  that 
individual  certificate  and  did  not  even  have  the  appear- 
ance of  forfeiting  anything.  These  concerns,  for  the 
most  part,  operated  on  the  immediate  payment  plan;  that 


•  96 

is,  instead  of  deferring  maturities  until  a  definite  period 
was  passed,  the  first  to  be  paid  was  taken  care  of,  as  soon 
as  money  enough  had  accumulated  in  the  treasury;  then 
the  next,  and  so  on.  These  concerns  grew  and  flourished, 
partly  availing  themselves  of  the  popularity  of  building 
and  loan  associations,  to  which  they  claimed  an  affinity, 
through  the  still  unshaken  faith  of  many  in  the  pure 
assessment  idea.  It  was  a  boast  of  their  agents  that  "It 
is  as  easy  to  kill  a  bond  as  a  man,"  that  "This  is  life 
insurance,  not  death  insurance' ' ;  and  to  bolster  this  up, 
every  miserable  old  falsehood  so  carefully  inculcated  by 
either  old-line  or  assessment  advocates  for  personal  ends, 
was  brought  to  bear.  And  the  suppression  of  the  great 
lyOuisiana  lottery  company  also  turned  to  these  concerns 
many  persons  who  had  played  the  lotter}^  and  who  were 
still  speculatively  inclined.  Such  a  combination  of  cir- 
cumstances made  a  growth  possible  which  could  not  have 
been  attained  at  ordinary  times  and  under  ordinary  cir- 
cumstances. To  such  dimensions,  indeed,  did  the  busi- 
ness of  one  of  these  companies  grow  that  it  caused  to  be 
subscribed  a  guaranty  capital  which,  however,  only  guar- 
anteed that  the  officers  would  not  steal  the  funds;  though 
the  fact  of  its  subscription  was  made  to  do  yeoman  service 
in  soliciting  trade. 

The  early  maturity  orders,  naturally,  reached  a  stop- 
ping place  first,  without  any  outside  interference.  The 
organization  of  new,  long-term  orders  was  checked  in 
Ivlassachuseits  by  legislation;  they  had  crept  in  through 
defects  in  the  co-operative  insurance  laws.  This  done, 
they  were  left  to  live  out  their  natural  lifetime  which, 
fortunately  for  the  managers,  closed  at  about  the  time 
when,  under  the  anti-lottery  statutes,  the  postoffice  depart- 
ment began  to  get  to  work.     The  bond  companies  organ- 


97 


ized  under  the  general  corporation  acts  of  various  States 
and  in  some  States  under  the  building  and  loan  associa- 
tion acts.  They  have  not  been  permitted  to  prey  upon 
the  people  until  they  went  up  in  smoke.  At  the  time 
when  the  larger  of  them  were  at  their  zenith  the  post- 
office  authorities  began  to  enforce  the  lottery  statutes  and 
they  were  denied  the  mails,  their  promoters  were  prose- 
cuted and  additional  legislation  was  secured  which  also 
shuts  them  out  of  the  express  companies'  facilities. 
Dozens  of  them  have  succumbed;  but  the  department  is 
still  kept  busy  suppressing  new  schemes  of  the  sort 
which  start  every  day. 

The  beginning  of  legitimate  assessment  endowments 
was  when  assessment  insurance  companies  began  to 
co-operate  with  investment  companies  in  a  combined  con- 
tract. This  led  to  combinations  within  the  associations, 
themselves;  of  all  of  which  subject  it  is  best  to  treat  in  a 
separate  paper. 


98 


LATER  FORMS  OF  ENDOWMENT  INSURANCE. 

A  pure  endowmerxt  is  a  promise  to  pay  money  at  the 
expiration  of  a  certain  period,  provided  tlie  payee  is  then 
living.  The  amount  thus  to  be  paid  is  made  up  from  the 
premium  with  interest  thereon  and  accretions  because  of 
the  forfeiture  of  premiums  paid  in  by  persons  who  failed 
to  survive  the  period.  For  instance,  if  one  thousand  per- 
sons, starting  at  the  same  age,  were  to  pay  in  sums  to 
accumulate  endowments,  the  whole  fund  with  all  its  inter- 
est would,  at  the  end  of  the  term,  be  divided  among  the 
survivors  and  each  survivor  would  get  a  larger  result  than 
he  would  if  his  own  investment  was  credited  with  its 
interest  only;  for  the  reason  that  the  number  among 
whom  to  divide  the  accumulated  fund  would  be  fewer 
than  the  number  of  those  who  contributed  to  it.  There 
would  be  no  such  advantage,  however,  if  the  heirs  of 
those  who  die  before  the  term  was  completed  were  per- 
mitted to  withdraw  what  they  had  paid  in  with  its  accu- 
mulations; in  that  case,  there  would  be  left  for  the 
survivors  merely  their  own  investments  with  interest. 

But  when,  instead  of  merely  their  own  contributions 
with  interest,  there  is  paid  to  the  heirs  of  each  who  dies 
a  sum  equal  to  that  which  he  would  have  received  if  he 
had  lived,  and  which  sum  is,  consequently,  larger  than 
his   own   contributions   to    that    date    with  interest,    it 


99 

is  clear  that  the  survivors  will  not  receive  as  much  as 
they  would  have  received  had  their  contributions  alone 
been  put  at  interest.  The  measure  of  the  decrease  in  the 
result  of  the  investment  will  be  found  to  be  what  they 
have  contributed  to  pay  the  excess  over  the  contributions 
of  those  who  have  died,  or,  in  other  words,  the  cost  of  the 
insurance  carried.  But  this  does  not  mean  what  would 
have  been  the  cost  of  an  insurance  for  the  whole  amount 
of  the  policy,  for  that  is  not  the  real  insurance.  There 
has  been  taken  from  the  funds  of  the  survivors  only 
enough  to  eke  out  the  contribiitions  of  those  who  died  to 
the  full  amount  of  their  policies  ;  that  is,  to  cover  the  dif- 
ference between  their  accumulations  and  the  face  of  the 
policies,  which  is  known  as  the  "actual  insurance." 

Another  and  an  equivalent  though  a  rather  far-fetched 
way  of  stating  this  is  that  the  whole  amount  of  the 
death  losses  paid  is  charged  up  to  the  survivors,  but,  as  a 
partial  offset,  the  accumulated  funds  under  the  policies 
matured  by  death  are  credited  to  the  survivors. 

These  two  manners  of  stating  the  same  thing  have  given 
rise  to  serious  misunderstandings  among  the  uninformed. 
One  way  of  explaining  an  endowment  insurance  has 
been  to  call  it  an  increasing  investment  with  comple- 
mentarily  decreasing  insurance,  and  another  way  to  call 
it  a  combination  of  term  insurance  and  pure  endowment 
insurance.  And  these  are  the  same  thing  precisely, 
though  apt  to  be  very  confusing  to  the  novice.  Either 
statement  is  correct,  according  as  it  is  conceived  that  the 
survivors  are  only  charged  with  the  actual  insurance  or 
are  charged  with  the  whole  insurance  and  then  credited, 
as  an  offset,  w^ith  the  accumulations  under  the  policies  of 
those  who  have  died.  And,  in  either  case,  the  result  will 
be  the  same,  and  it  will  always  be  less  than  the  funds 


lOO 

would  have  returned  if  invested  to  as  good  advantage 
but  without  the  accompaniment  of  insurance  and  less  by- 
just  the  amount  which  the  insurance  costs. 

Endowments  are  no  necessary  part  of  the  business  of  a 
life  insurance  company.  Pure  endowments  are  the  antith- 
esis of  insurance  and  there  is  no  indemnity  about  them, 
for  there  can  be  no  loss  to  the  holder  because  of  his  sur- 
viving which  the  company  can  properly  indemnify.  To 
apply  the  laws  of  average  to  provide  such  a  contract  is 
as  much  a  prostitution  of  actuarial  science  as  would  be 
any  other  mere  gambling  computation,  for  it  is  not  the 
actuarial  office  to  assist  in  rendering  men's  lots  unequal 
by  furnishing  a  benefit  in  cases  where  there  is  no  (Corres- 
ponding loss.  Endowment  insurances  are  a  shade  less 
objectionable,  because  the  element  of  insurance  exceeds 
in  amount  the  endowment  element  until  the  endowment 
matures,  though  there  are  trick  policies  in  which  this  is 
not  the  case. 

Assessment  societies  were  originally  organized  because 
the  buyers  of  insurance  did  not  want  endowments  or  even 
the  comparatively  small  measure  of  investment  which 
appears  in  life  and  limited-payment  life  policies.  The 
customs  and  laws  governing  assessment  insurance  were 
hostile  to  the  idea  of  investment.  But  we  have  seen  how 
the  temporary  success  of  the  assessment  system  of  raising 
money  to  pay  losses  led  associations  to  form  for  the  pur- 
pose of  applying  an  equally  simple  plan  for  paying 
endowments.  And,  though  these  concerns  were  on  a 
plan  which  brought  early  and  inevitable  ruin,  the  idea  of 
accomplishing  the  same  thing  in  some  more  practicable 
way  still  clung  in  the  minds  of  assessment  managers. 
And,  as  there  are  some  very  bright  and  capable  men 
among  them,  it  was  natural  that  the  true  system  should 


become  patent  to  them  and  that  efforts  should  be  made 
to  put  it  in  practice. 

The  first  attempt  at  supplying  an  endowment,  on  the 
basis  of  investment  of  the  insured's  contributions,  was 
in  the  form  of  intrusting  the  investments  to  a  separate 
company  which  then  bore  a  very  high  reputation.  The 
arrangement  was  that  if  the  insured  died  before  the 
endowment  matured  the  accumulated  investment  should 
be  forfeited  to  the  society,  which  was  but  another  way  to 
say  that  the  society  would  use  that  value  to  help  pay  the 
loss.  Of  course  this  plan  was  found  to  be  cumbersome 
and  unwieldy  in  practice  and  the  society  would  have 
been  likely  to  have  discontinued  it  anyhow  had  not  the 
failure  of  the  investment  company  hastened  that  discon- 
tinuance. 

Since  then  it  has  undertaken  to  do  the  investing  itself 
and  with  better  success.  But  there  are  grave  legal  ques- 
tions as  to  its  right  to  do  so  and  in  some  States  societies 
are  directly  prohibited  from  paying  benefits  to  the  insured 
during  their  lifetime  and  good  health.  As  most  of  these 
endowment  policies  are  due  in  old  age,  it  is  probably 
expected  to  justify  their  issue  as  a  provision  against  dis- 
ability. The  policies  do  not  differ  from  the  endowment 
policies  of  the  regular  companies  in  any  essential  particu- 
lar except  that  the  premiums  may  be  increased,  if  exi- 
gencies demand. 


102 


ESSENTIAL  ELEMENTS  OF   THE    CONTRACT. 

Originally  there  was  not  much  trouble  about  the  form 
of  an  assessment  life  insurance  contract.  In  its  simplest 
form  it  was  a  mere  promise  to  pay  over  the  proceeds  of 
an  assessment  of  so  much  a  head.  There  was  no  disguise 
that  the  amount  which  the  certificate  would  yield  was 
speculative.  In  the  earlier  stages  of  an  association  it  was 
not  uncommon  to  hear  talk  of  its  hoping  soon  to  pay  in 
full.  If  these  associations  had  originally  been  compelled 
to  pay  in  full  from  the  start,  many  of  those  which  have 
since  attained  great  growth  could  never  have  come  into 
existence.  It  is  doubtful,  also,  whether  they  would  have 
been  permitted  to  exist  at  that  time  if  they  had  under- 
taken to  promise  definite  returns.  For  many  years 
almost  the  most  distinctive  characteristic  of  assessment 
life  insurance  was  that  it  did  not  promise  anything  cer- 
tain, and  in  some  States  that  peculiarity  became  by  statute 
a  legal  distinction. 

As  associations  grew  larger  and  stronger  the  signifi- 
cance of  the  distinction  was  in  practice  lost.  The  certifi- 
cates were  paid  in  full  and  were  sure  to  be  so  long  as  the 
proceeds  of  an  assessment  exceeded  the  amount  of  a  claim. 
Still,  there  were  associations,  which  dragged  out  a  long, 
though  surely  not  successful  existence,  that  never  paid 
the  face  value  of  a  certificate  from  the  date  of  organiza- 
tion. But,  with  the  evolution  of  assessmentism  from  the 
chrysalis  stage,  there  was  added  to  the  original  promises 


103 

of  the  certificates  the  limit  that  the  benefit  should  not 
exceed  the  face  value.  It  is  human  nature  perhaps  that 
this  should  soon  be  disguised  by  putting  the  objectionable 
words  in  small  type,  while  the  amount  of  the  face  valae 
of  the  certificate  appeared  in  large  type  or  engrossed  let- 
ters. And,  in  fact,  after  associations  had  for  a  long  time 
been  paying  certificates  in  full,  they  became  ashamed  ot 
what  seemed  an  aspersion  upon  them  and  certificates 
which  merely  said  that  John  Doe  was  a  member,  entitled 
to  a  death  benefit  of  a  named  amount,  subject  to  the  rules 
or  by-laws,  became  very  common. 

It  was  a  long  time  before  the  last  advance  was  made 
and  it  was  made  very  cautiously,  for  the  assessment  socie- 
ties understood  well  enough  that  they  were  treading  on 
doubtful  ground.  Indeed,  since  the  very  beginning, 
they  have  been  working  along  the  very  border  of  the 
law  and  they  have,  like  other  institutions,  really  created 
law  by  their  customs  to  a  much  greater  degree  than  by 
the  statutes  which  they  have  procured  to  be  passed  for 
their  regulation.  Originally  they  escaped  serious  inter- 
ference by  their  very  obscurity  and  lowliness,  and,  when 
first  called  in  question,  it  was  found  that  they  had  prom- 
ised nothing — that  there  was  neither  anything  definite 
about  what  they  would  charge  nor  about  what  they  would 
pay.  The  beginnings  of  their  democratic  co-operation 
seemed  so  poor  that  the  law  could  hardly  take  cognizance 
of  them;  but,  little  by  little,  they  progressed  until  the 
general  principle  was  pretty  generally  established  that  a 
mutual  life  insurance  society  which  left  either  what  it 
would  charge  or  what  it  would  pay  open  was  essentially 
an  assessment  association  and  should  not  be  subjected  tc 
the  same  tests  of  solvency  which  are  properly  applied  to 
a  company  which,  for  a  definite  consideration,  agrees  to 


104 

perform  a  definite  thing.  In  evolving  this  principle, 
which  seems  to  be  sound  sense,  the  associations 
pretty  generally  advanced  to  definitely  agreeing  to 
pay  the  full  amount  of  their  certificates,  while  leav- 
ing the  premiums  to  be  charged  more  or  less  indefinite 
and,  at  any  "rate,  never  or  rarely  limited.  The  peculiar- 
ity of  this  is  that  such  a  company  in  Great  Britain  would 
not  be  ranked  as  a  Friendly  Society  at  all  because  of  this 
characteristic,  at  least  so  long  as  it  actually  fixed  its  regular 
premiums  with  a  view  to  some  mortality  table.  There 
the  mutual  life  insurance  societies  all  retain  the  privilege 
of  assessment,  in  event  the  premiums  prove  inadequate; 
and  of  this  fact  the  foremost  actuary  in  the  ranks  of 
American  assessmentism  has  shrewdly  taken  advantage 
both  in  the  constitution  of  his  own  society  and  in  the 
fieldwork.  His  attitude  has  doubtless  emboldened  others 
to  assume  a  similar  position  and  has  contributed  in  a 
great  degree  to  bring  the  assessment  associations  to 
promise  definite  results. 

The  same  principle  offered  the  alternative  of  contract- 
ing for  a  definite  consideration  to  pay  an  indefinite 
amount.  But  this,  which  formed  something  of  a  feature 
in  various  British  Friendly  Societies,  never  attained 
popularity  here.  The  Provident  Savings  offered  such  a 
contract  for  sale,  but  found  few  buyers,  possibly,  how- 
ever, because  its  natural  premium  policies  were  sold  as 
policies  whose  premiums  were  likely  to  remain  level, 
through  the  misrepresentations  of  agents.  But,  while 
not  willing  to  sacrifice  definite  promises  to  pay  in  order 
to  make  use  of  definite  considerations,  the  assessment 
societies  did  look  with  longing  eyes  upon  the  latter.  It 
must  be  premised  that  at  different  stages  of  the  develop- 
ment   of   assessmentism    its    advocates    have    honestly 


lOB 

believed  that  insurance  for  a  definite  amount  could  be 
permanently  furnished  for  the  current  cost  then  ruling  in 
their  societies.  Indeed,  there  are  individuals  now  in  the 
business  who  have  not  yet  progressed  beyond  that  stage 
of  insurance  evolution.  To  such  it  seemed  and  seems 
a  hardship  not  to  be  able  to  say  at  just  what  price  they 
will  furnish  insurance  or,  at  least,  to  put  a  limit  on  the 
cost.  This  may  seem  very  puerile,  as,  if  the  cost  does 
exceed  the  limit,  the  limit  is  not  required  and,  if  it 
should  exceed  it,  the  limit  would  be  worthless;  but  there 
are  many  puerile  things  which  do  not  seem  so  to  the 
parties  directly  interested,  and  the  managers  of  assess- 
ment societies  grew  pretty  weary,  no  doubt,  of  having  it 
dinned  into  their  ears  that  the  rates  they  offered  were  not 
guaranteed.  And  when  they  have  made  their  rates  by 
the  latest  and  most  improved  actuarial  methods,  as  is 
sometimes  the  case,  this  seems  doubly  a  hardship;  and 
not  all  of  them  are  so  clever  as  Mr.  Fouse  and  so  quick 
to  turn  the  tables  on  their  adversaries. 

Consequently  there  arc  wonderful  subterfuges  resorted 
to  for  the  purpose  of  concealing  that  the  cost  is  not  defi- 
nite and  guaranteed.  Perhaps  the  most  common  of  these 
subterfuges  is  to  make  the  rate  of  assessments  definite, 
while  the  number  is,  of  course,  subject  to  the  exigencies 
which  arise.  Thousands  of  people  have  been  so  careless 
or  so  dull  that  they  were  deceived  by  that.  But  with 
the  more  modern  plans  come  improved  means  of  conceal- 
ing the  fact  that,  in  event  of  an  exigency  demanding  it, 
the  premium  ma}^  be  increased.  Recent  policies  of  some 
of  the  reorganized  and  advanced  associations  are  marvels 
in  this  respect,  a  seemingly  definite  consideration  being  one 
of  the  first  things  to  meet  the  eye,  the  modification  and  ex- 
ception being  hidden  in  fine  print  on  the  back  of  the  policy. 


106 

There  seems  to  be  no  good  reason  for  this  nor  even  a 
first-class  excuse.  The  low  premium  is,  of  itself,  an 
argument  for  a  privilege  of  further  assessment  and  it 
would  be  dangerous  to  charge  a  premium  lower  than  is 
sure  to  be  adequate  without  such  a  safety-valve.  There 
can  be  little  question  that  an  intelligible  statement  of  the 
facts  would  serve  an  association  better  than  any  such 
subterfuge  and  would  completely  disarm  criticism. 


107 


POUCy    CONTRACTS.       RESERVATIONS.  AND 
MODIFYING    CI.AUSES. 

Reference  to  the  application  and  statement  to  the  med- 
ical examiner  as  warranties  is  practically  universal  among 
assessment  associations.  The  effect  of  this  is  to  make 
the  validity  of  the  insurance  depend  upon  the  literal 
truth  and  exactness  of  each  statement,  without  regard  to 
its  importance  or  relevancy  or  to  the  knowledge  or  intent 
of  the  insured.  This  means  that  if  an  applicant  states 
that  his  grandmother  died  at  80,  when  she  actually  sur- 
vived to  81,  the  association  may  refuse  to  pay  and  the 
claimant  is  estopped  from  setting  up  the  triviality  of  the 
mistake.  In  one  of  the  cases  reported  to  the  New  York 
department  during  the  examination  of  a  large  associa- 
tion, the  reason  given  for  forcing  a  compromise  of  a 
claim  for  much  less  than  its  face  was  of  just  this  charac- 
ter. Probably  there  were  other  causes,  and  certainly 
there  usually  are  other  causes  when  associations  dispute 
claims ;  but  in  the  courts  it  will  be  found  that  associa- 
tions rely  on  just  such  technicalities.  It  would  seem 
that  to  certify  to  the  best  of  one's  knowledge  and  belief 
should  be  enough  ;  that  would  leave  the  burden  of  prov- 
ing the  intent  and  knowledge  of  the  applicant  and  the 
relevance  and  importance  of  the  fact  withheld  or  misrep- 
resented upon  the  association  which  disputed  a  claim. 

Associations,  on  the  whole,  note  about  the  same  excep- 
tions in  which  cases  the  insurance  is  avoided  as  do  the 
regular  companies.     And  the  practice  of  concealing  these 


108 

exceptions  by  printing  them  apart  from  the  promise  which 
they  modify,  and  in  small  type,  is  about  as  common  as 
in  the  regular  companies;  though  but  few  of  them  have 
yet  learned  the  trick  of  inserting  the  conditions  in  some 
obscure  place  in  the  application.  To  offset  this,  how- 
ever, there  is  a  very  common  custom  among  the  fraterni- 
ties of  embodying  the  exceptions  in  the  articles  of  asso- 
ciation and  the  by-laws  and  not  otherwise  referring  to 
them  in  the  certificate  than  by  a  general  reference  to  the 
by-laws.  Thus  the  insured  is  not  enlightened  about  the 
conditions  nor,  indeed,  apprised  that  there  are  conditions 
unless  he  reads  the  charter  and  by-laws  of  the  fraternity. 

Recently  some  of  the  associations,  which  have 
advanced  more  closely  to  the  plans  and  methods  of  the 
regular  companies,  have  followed  them  in  greatly  simpli- 
fying or  even  wholly  abolishing  the  conditions  and 
exceptions.  But  that  tendency  is  not  yet  very  marked  ; 
and,  on  the  other  hand,  a  very  large  number  of  the  asso- 
ciations not  merely  subject  the  member  to  conditions 
known  to  exist  at  the  time  of  effecting  the  insurance,  but 
also  to  whatever  conditions  the  association  may  there- 
after choose  to  enact.  This  is  accomplished  by  issuing 
certificates  subject  to  the  articles  of  association  and  the 
by-laws,  and  any  changes  which  may  be  made  in  the 
same. 

Nearly  all  the  fraternities  go  beyond  this  and  reserve 
the  right  to  terminate  the  insurance  by  expelling  the 
member.  Probably  very  little  insurance  could  be  sold 
for  a  regular  company  if  it  reserved  the  right  to  cancel  at 
will ;  for  it  would  certainly  be  expected  that  the  company 
would  invariably  cancel  when  it  learned  that  a  policy- 
holder was  about  to  die.  But  no  vsuch  expectation  seems 
to  exist  in  the  case  of  a  fraternity,  though  apparently 


109 


unlimited  power  of  expulsion  is  granted,  This,  doubt- 
less, arises  from  the  fact  that  one  can  only  be  expelled 
under  charges  and  after  a  trial  by  fellow-members.  At 
the  same  time  there  is  risk  enough,  especially  when  a 
member  may  have  rendered  himself  unpopular  by 
espousing  some  cause  which  meets  the  condemnation  of 
his  fellows,  for  instance.  Fortunately,  the  right  has 
not  been  much  abused,  and  that  fact  accounts  for  its  con- 
tinuance ;  misuse  of  the  expulsion  privilege  would,  of 
course,  end  in  the  destruction  of  the  privilege. 

There  is  one  special  manner  in  which  it  is  already 
being  misused  and  that  is  in  expelling  persons  who  have 
become  dissolute.  The  behavior  of  such  persons  com- 
monly deprives  them  of  the  sympathy  of  the  other  mem- 
bers, who,  in  disgust,  vote  to  expel  them,  feeling  that  to 
continue  to  treat  them  as  equals  and  associates  is  a  dis- 
honor. This  might  be  very  well  were  it  not  that  these 
persons  have  almost  invariably  got  beyond  the  point 
where  their  own  wills  can  check  their  downward  course. 
And,  it  may  be  safely  asserted,  that,  when  a  considera- 
tion of  the  present  welfare  of  their  wives  and  children 
will  not  avail  to  restrain  them  from  their  practices,  no 
consideration  of  the  danger  of  losing  protection  already 
provided  for  them  will  avail.  Consequently,  on  no 
ground  can  the  cancellation  of  their  policies  be  defended, 
and  especially  indefensible  is  the  custom  when  left  to 
local  lodges  to  determine,  hundreds  escaping  the  disci- 
pline and  only  an  occasional  victim  being  offered  up. 
At  the  same  time,  the  fraternities  are  by  no  means  the 
only  sinners  in  this  regard;  a  large  and  ultra-respectable 
association  makes  a  practice  of  sending  out  detectives  to 
spy  upon  its  members  and  to  take  up  policies  on  the 
lives  of  men  who  have  become  dissipated.     And  a  regular 


no 


company,  of  the  very  highest  standing-,  also  reserves 
the  right  to  cancel  insurance  on  this  ground,  though  it 
now  limits  that  right  to  a  short  term  of  years. 


SURRENDER  CONDITIONS. 

In  the  original  form  of  assessment  insurance  any  ques- 
tion of  a  surrender  value  could  hardly  arise.  It  was 
purely  insurance  from  month  to  month  and  not  even  paid 
for  in  advance.  The  fact  was  that,  whenever  a  member 
refused  to  pay  his  assessment,  he  was  already  ahead  the 
full  value  of  the  protection  afforded  him  since  the  last 
assessment  was  levied  and  paid.  In  several  associations 
and  fraternities  which  are  still  flourishing,  the  same  prac- 
tice of  collecting  the  dues  after  the  losses  have  occurred 
persists.  It  is  practicable  to  do  so,  because  the  proving 
up  of  claims  necessarily  takes  some  time,  during  which 
the  assessments  may  be  collected;  but  it  is  dangerous, 
because  under  it  the  temptation  is  especially  strong  to 
let  claims  accumulate  when  the  death  rate  is  increasing. 
In  these  associations  every  member  who  retires  has 
received  more  than  he  has  paid  for  by  precisely  the  value 
of  the  protection  afforded  since  the  payment  of  his  last 
assessment. 

But  a  great  many  associations  early  departed  from  this 
system  by  offering  opportunities  and  inducements  for  the 
deposit  of  money  to  be  used  in  paying  assessments  as  they 
were  called,  thus  preventing  the  lapse  of  the  insured's 
certificate.  The  advantage  of  this  procedure  is  very 
patent  and  in  some  associations  the  practice  was  made 
obligatory,  while  in  others  it  became  common.  Some  of 
these  associations  still  clung  to  the  plan  of  assessing  after 


112 

deaths  occurred,  making  no  charge  against  the  deposit 
until  after  the  assessment  v/as  thus  levied;  but  others 
began  to  adopt  the  idea  of  "keeping  a  death  in  hand,"  or 
of  collecting  in  advance  of  losses,  and  so  charged  against 
the  deposit  before  the  losses  accrued.  These  deposits 
were  ordinarily  very  small,  frequently  not  exceeding  the 
amount  of  one  or  two  assessments.  The  deposits  were 
really  applied  to  extend  the  insurance,  which  could  not 
lapse  so  long  as  the  deposit  was  large  enough  to  cover  an 
assessment.  Thus,  in  those  associations  which  continued 
assessing  after  the  claims  accrued,  the  withdrawing  mem- 
bers still  receive  more  insurance  than  they  paid  for,  and, 
in  those  which  collected  one  assessment  in  advance,  all 
the  insurance  they  paid  for.  Thus  it  was  impossible  for 
any  problem  concerning  surrenders  to  arise. 

These  deposits  were  definitely  regarded  the  property  of 
the  insured,  merely  deposited  by  the  members  and  to  be 
used  for  their  benefit.  The  associations  made  no  claim 
to  have  received  a  title  to  the  money  and,  doubtless,  in 
most  cases  it  would  have  been  returned,  had  the  members 
demanded  it,  whether  they  intended  to  quit  the  associa- 
tion or  to  continue.  In  some  cases  where  the  deposit  was 
obligatory,  possibly  this  would  not  have  been  allowed. 
But,  side  by  side  with  this  system,  there  grew  up  another 
which  called  for  money  to  be  paid  in,  in  one  sum  or  by 
installments,  or  in  additions  of  a  percentage  to  the  regu- 
lar dues,  to  form  a  fund  separate  from  the  mortuary  fund, 
which  received  the  name  of  guaranty  fund  or  some  other 
name  expressing  a  similar  idea.  This  money  was  paid 
into  the  associations  for  the  purpose,  generally,  of  form- 
ing a  capital  which  would  guarantee  the  payment  of 
losses,  gain  for  the  association  credit  and  standing  and 
which  also  might,  in  some  more  or  less  mysterious   way, 


113 

prevent  the  otherwise  inevitable  rise  in  the  price  of  insur- 
ance. The  member's  property  in  his  -contributions  to 
this  fund  was  sometimes  wholly  denied  and  sometimes 
partially  recognized. 

The  ordinary  significance  of  the  fund  being  that  of 
answering  the  part  of  guaranty  capital,  several  associa- 
tions treated  the  contributions  of  each  member  much  as  a 
membership  fee,  having  it  become  a  part  of  the  general 
assets  of  the  associations  and  not  be  returnable  either  in 
case  of  death  or  withdrawal.  In  some  cases,  benefits  from 
this  fund  were  promised  to  survivors  of  a  certain  period, 
the  idea  being  both  to  discourage  lapses  by  keeping  the 
share  of  guaranty  capital  and  to  encourage  persistance  by 
the  inducement  of  future  benefits  from  this  fund. 

When  this  contribution  to  capital  account  was  the  same 
amount  for  each  $i,ooo  of  insurance  and  contributed  in 
one  sum,  which,  it  was  definitely  understood,  was  never 
to  be  returned  to  the  member,  or  in  installments  of  that 
sum  with  a  similar  understanding,  the  contribution  of 
each  one  being  small,  there  could  be  no  considerable 
objection  to  the  plan.  It  furnished  a  capital  which 
brought  the  associations  credit  and  standing  and  was, 
so  far,  a  benefit.  Many  of  the  associations,  also,  notice- 
ably the  Bankers'  of  Des  Moines,  and  its  imitators,  have 
added  this  contribution  to  the  face  of  the  certificate  at 
the  death  of  the  holder,  merely  treating  it  as  a  proper 
surrender  charge  on  discontinuance,  but  otherwise  as  the 
property  of  the  contributor. 

But  several  of  the  leading  associations,  instead  of  col- 
lecting one  sum  in  advance  or  its  equivalent  in  install- 
ments, have  added  to  each  assessment  a  percentage 
thereof  of  the  guaranty  fund.  In  practically  all  these  cases 
some  benefit  other  than  the  mere  security  was  promised  in 


114 


return  for  this  contribution  which,  it  would  appear,  should 
have  been  'on  that  account  considered  as  peculiarly  attach- 
ing to  the  certificate  of  the  contributor.  It  will  be 
observed  that  under  this  plan,  no  surrender  value  being 
allowed  (and  that  was  the  rule),  there  was  an  increasing 
forfeiture  incurred,  the  longer  discontinuance  was  delayed, 
until  the  period  when  the  supposed  benefit  began  had 
been  reached. 

In  this  there  was  and  is  a  very  evident  inequity  which 
cannot,  however,  be  wholly  ascribed  to  the  associations 
and  their  managers.  The  fact  is,  that  in  many  States  the 
laws,  and  especially  those  passed  to  abate  the  endow- 
ments orders,  expressly  forbade  the  return  of  money  to 
members  during  their  lifetime,  except  in  the  form  of  sick 
or  accident  benefits;  and,  in  addition,  at  the  instance  of 
the  regular  companies,  insurance  departments  were  very 
quick  to  detect  and  thwart  any  movement  which  could  be 
classed  as  an  infringement  of  the  plans  peculiar  to  the 
regular  companies. 

But,  in  more  recent  years,  several  of  the  associations 
have  collected  premiums  avowedly  intended  to  be  level, 
though  subject  to  increase  if  necessity  compels.  These 
premiums  have,  of  course,  been  greater  than  current 
needs  in  the  early  history  of  the  policies,  and  an  implied, 
if  not  express,  agreement  exists  that  this  excess  shall  be 
accumulated  to  make  good  the  deficiencies  of  future  pre- 
miums, when  the  current  needs  shall  call  for  more  money 
than  the  premium  supplies.  That  is  to  say,  this  excess 
is  paid  into  the  association's  hands  to  cover  a  part  of  the 
cost  of  future  insurance.  Nothing  can  be  clearer  than 
that,  if  the  member  withdraws,  this  accumulation  has 
not  been  needed,  and  so  should  either  be  expended  for 
his  benefit  or  returned  to  him.     This  very  few  of  the 


lis 

associations  as  yet  recognize.  Many  of  them  have  been 
misled  by  the  false  teachings  of  regular  companies  about 
gain  from  lapses  into  supposing  that  a  large  profit  might 
be  obtained  from  these  forfeitures  which  would  enable 
them  to  furnish  insurance  to  the  persistent  survivors 
cheaper  than  otherwise.  Others  may  have  been  merely 
indifferent  about  the  matter.  But,  whatever  the  cause, 
it  still  remains  a  fact  that  many  of  the  associations,  which 
are  furthest  advanced  otherwise,  are  slow  to  adopt  proper 
methods  for  securing  to  withdrawing  members  those 
equities  which  alone  can  justify  the  collection  of  any 
part  of  the  future  cost  of  insurance  in  advance. 

This  fact  is  the  most  dangerous  obstacle  in  the  way  of 
the  progress  of  these  institutions.  They  were,  as  has 
been  seen,  organized  as  a  protest  against  that  very  form  of 
discrimination  as  practiced  by  the  regular  companies. 
The  continuance  and  exploitation  of  the  system  of  forfeit- 
ures by  the  regular  companies  was  responsible  for  the 
increasing  expenses  required  to  sell  insurance  to  a  more 
and  more  wary  and  reluctant  public.  These  high  ex- 
penses, in  turn,  caused  a  still  larger  portion  of  the 
buyers  of  insurance  to  turn  to  the  assessment  societies, 
and  also  served  to  make  their  increase  of  death  losses  and 
consequently  of  mortality  cost  seem  small.  If  now  the 
assessment  companies,  in  working  out  into  the  light  in 
other  respects,  are  to  create  in  the  minds  of  the  buyers  of 
their  insurance  the  same  impression  that  it  is  only  a  good 
thing  if  one  "can  see  his  way  clear  through,"  they  will 
find  the  same  reluctance  to  purchase  and  the  same  conse- 
quent increase  of  cost  of  new  business.  Indeed,  they  are 
already  experiencing  this,  as  the  department  reports 
clearly  show;  and  a  reform  is  urgently  needed  at  this 
time. 


116 


MODES  OF  GOVERNMENT. 

With  one  exception — the  Hartford  L^ife  and  Annuity 
Company — the  assessment  companies  are  mutual  in  form 
as  well  as  in  the  matter  of  participation.  Ostensibly, 
therefore,  in  every  case  the  control  of  these  societies  is 
vested  in  their  members,  who  vote  either  per  capita  or 
per  thousand  dollars  of  insurance  carried.  This  vesting 
of  the  authority  in  the  members  is  manifestly  just  and 
proper,  as  they  alone  have  any  direct  interest  in  the 
affairs  of  the  societies  and  are  the  owners  of  their 
invested  funds,  if  any,  and  of  their  charter  rights  and 
good  will.  On  the  principle  that  a  man  should  be  master 
over  his  own,  subject,  of  course,  to  the  public  weal,  it  is 
clear  that  the  control  of  a  mutual  insurance  organization 
should  be  in  its  members. 

There  is  in  practice  often,  if  not  always,  another  inter- 
est which,  on  occasion,  becomes  an  adverse  interest. 
This  is  the  interest  of  promoters  and  managers  who  may 
have  invested  or,  more  accurately,  expended  money  in 
establishing  the  associations  and  who,  in  any  case,  desire 
to  perpetuate  themselves  in  the  honors  and  emoluments 
of  office.  There  is  no  more  natural  or  innocent  desire, 
perhaps,  than  the  wish  to  continue  to  be  of  service  in  a 
position  for  which  one  has  tested  his  capacity  and  it  is 
but  to  be  expected  that  the  average  man  will  look  for 
ample  compensation  for  the  service  of  making  an  institu- 
tion like  a  mutual  life  insurance  association  a  success. 


117 

Those  who,  because  they  were  the  promotors,  perhaps, 
or  for  other  reasons,  have  become  the  officers  of  these 
associations  are  likely  to  view  with  suspicion  attempts  on 
the  part  of  members  to  exercise  the  control  which  is 
ostensibly  theirs.  They  judge,  more  or  less  correctly,  as 
the  case  may  warrant,  that  the  members  who  are  satis- 
fied with  their  administration  will  not  trouble  themselves 
about  exerting  a  controlling  influence  over  them,  while 
efforts  to  procure  a  wide  expression  of  the  members'  will 
is  undertaken  only  in  the  interest  of  place-hunters  who 
would  supplant  them  not  for  any  good  purpose.  On  this 
account  the  managers  have,  in  the  main,  fostered  the 
* 'proxy  plan,"  which  they  have  borrowed  from  the  regu- 
lar companies,  and  the  effect  of  which,  when  combined 
with  a  refusal  to  allow  members  access  to  the  books  that 
give  the  names  and  addresses  of  members,  is  to  make  it 
nearly  or  quite  impossible  for  the  management  to  be 
overthrown.  They  are,  in  fact,  making  use  of  the  iner- 
tia of  men  by  refusing  such  facilities  for  the  expression 
of  the  members'  will  as  would  enable  even  the  laziest 
member  to  give  his  vote.  They  oppose  to  the  activity  of 
interested  members  who  attend  the  meeting  the  passive 
votes  of  members  who,  through  carelessness  or  indiffer- 
ence, have  given  their  proxies  and  then  forgotten  all 
about  it. 

Except  in  associations  the  managers  of  which  confis- 
cate extravagant  sums  for  their  own  use,  this  system  is 
kept  up  solely  through  a  fear  that  the  will  of  the  members 
would  prove  unstable  and  that,  in  consequence,  the  man- 
agement would  be  frequently  altered.  The  presumption 
most  naturally  resulting  from  such  a  fear  is  that  the  man- 
agers have  something  to  hide.  Doubtless  in  some  asso- 
ciations  this   is   the   fact;  either   the   salaries   paid   are 


118 

extortionate  or  the  officers  have  some  hidden  revenue  or 
there  is  something  else  to  conceal.  But  in  the  majority 
of  cases  there  is  no  occasion  for  concealment  and  little 
probability  of  it,  owing  to  the  rather  full  investigations 
by  the  State  officials.  It  is  but  just  to  say  that  many 
officers  who  genuinely  wish  to  do  what  is  best  for  the 
interests  committed  to  their  charge  are  of  the  opinion  that 
to  intrust  the  members  with  more  than  the  appearance  of 
power  would  result  in  such  constant  bickering  and  change 
that  a  successful  management  would  be  out  of  the  question. 
Moreover,  until  very  recentl}',  methods  for  actually 
ascertaining  the  will  of  the  majority  have  not  been  known 
at  all,  excepting  only  the  representative  or  lodge  system 
which  distinguishes  the  fraternal  orders.  Even  now  the 
facilities  which  our  means  of  speedy  communication  offer 
are  imperfectly  understood  and  the  proposition  to  take  a 
vote  by  mail  sounds  to  many  chimerical,  because  it  is  novel. 
The  objection  to  requiring  a  personally  cast  ballot  at  everj^ 
meeting  has  been  that  this  surrenders  the  control  to  the 
small  number  of  the  members,  who  are  able  to  attend — a 
very  small  proportion  of  the  whole  when  the  business 
extends  over  a  wide  field.  Ordinarily  that  system  means 
the  complete  control  of  the  meeting  by  friends  of  the 
administration  ;  and,  when  this  is  not  true,  it  means  a 
factional  fight  between  minority  parties,  neither  of  which 
really  desires  the  will  of  the  members  to  prevail.  The 
lodge  system  appears  to  the  managers  of  other  associa- 
tions to  be  artificial  and  to  savor  of  hypocrisy  and  pre- 
tense, each  member  really  belonging  for  his  own  advan- 
tage while  setting  up  a  loud  cry  of  brotherhood  and  altru- 
istic motive.  Under  the  circumstances,  it  is  not  to  be 
wondered  at  that  the  managers  of  assessment  societies, 
when  reinforced  by  practically  the  universal  practice  ot 


119 

regular  companies,   should  repose  on  the  time-honored 
''proxy"  system. 

They  might  learn  a  lesson  from  the  fraternities,  which 
have  had,  on  the  whole,  quite  as  stable  a  management  as 
the  assessment  societies  of  the  other  sort.  Indeed,  except- 
ing those  instances  when  the  management  was  recreant 
to  the  trust  imposed  in  it,  the  fraternities  are  actually 
more  averse  to  changes  in  the  personnel  of  their  real  man- 
agers than  other  mutual  life  insurance  companies.  To  be 
sure,  they  make  frequent  changes  in  the  more  ornamental 
offices,  the  duties  of  which  are  supervision  and  the  emolu- 
ments practically  confined  to  titular  dignities,  but  in  the 
actual  working  force  few  changes  are  made  save  for  suf- 
ficient reason.  The  frequent  shifting  of  the  titular  officers 
is  a  fortunate  thing,  inasmuch  as  it  provides  for  inspec- 
tion of  the  societies'  operations  by  different  men,  who  do 
not  expect  to  retain  office  and  who  in  consequence  have 
no  axes  to  grind  by  concealing  the  mismanagement  of  the 
active  officers. 

This  form  of  control  has  not  merely  been  found  the 
most  stable,  but  also  the  most  economical,  which  is  cer- 
tainly a  great  advantage  in  competition.  Some  of  the 
fraternities  are  conducted  at  an  expense  of  but  a  fraction 
of  a  dollar  per  thousand  of  insurance  or  even  per  mem- 
ber; and  almost  all  of  them  are  conducted  at  a  very  low 
expense  compared  to  that  which  rules  in  regular  com- 
panies or  in  other  assessment  societies.  This  low  rate  of 
expense  has,  without  question,  saved  several  fraternities 
from  ruin  when  confronted  by  a  very  unusual  mortality; 
for,  it  must  be  remembered  that  several  life  insurance 
companies  and  some  assessment  associations  use  from  $6 
to  $io  per  $i,ooo  for  expenses,  which  is,  of  itself,  equiv- 
alent to  a  big  difference  in  the  death  rate. 


120 

There  is  a  mistaken  idea  prevalent  among  insurance 
men  that  the  fraternities  are  niggardly  about  paying  for 
services  rendered.  It  may  be  that  they  are  a  little 
quicker  to  reduce  the  pro  rata  payment  for  services,  as 
it  becomes  easier  to  render  them,  than  are  other  compan- 
ies; that  is  to  say,  they  ordinarily  revise  their  payments 
for  obtaining  new  members,  for  instance,  more  promptly 
than  other  companies  when  they  find  that  the  same  time 
and  talent  is  bringing  larger  results.  But,  on  the  whole, 
they  are  liberal  paymasters  for  actual  service.  They  do 
not  pay  as  much,  to  be  sure,  for  the  management  of  a 
current  cost  plan  of  insurance  as  for  a  management  of  a 
combination  insurance  and  investment  plan.  And  why 
should  they?  One  of  their  active  managers  who  has  scored 
unusual  success  on  this  combination  plan  is  freely  voted  a 
salary  of  $10,000  a  year,  whtch  will  not  be  thought  illib- 
eral, though  less  by  far  than  many  managers  have  voted 
themselves  through  manipulation  of  the  proxy  system. 

There  is  no  doubt  whatever  that  a  fair  trial  of  a 
purely  democratic  system  of  control,  in  which  the  man- 
agement trusted  the  members  to  do  the  fair  thing  by  it, 
as  well  as  the  wise  thing  for  themselves,  will  demonstrate 
that  efficiency,  stability  and  economy  will  prevail  under 
such  a  system.  And  popular  institutions,  in  mode  of 
government,  will  be  found  to  be  popular,  in  the  sense  of 
obtaining  readily  a  strong  hold  upon  the  affections  of  the 
people.  Moreover,  when  managers  shall  be  found — and 
they  will  be  more  readily  found  by  means  of  popular 
choice  than  by  self-seeking  and  place-hunting — who  wish 
to  lead  the  people  right,  without  caring  to  arouse  their 
antagonisms  against  other  companies  or  systems,  it  will 
appear  that  the  people  will  recognize  both  the  man  and 
the  practicability  and  virtues  of  correct  and  sound  plans. 


121 


THE  SITUATION  AND  OUTLOOK. 

It  is  apparent  to  even  the  least  observing  that  assess- 
ment life  insurance  is  now  in  process  of  evolution  and 
that  its  final  form  is  not  wholly  determined.  Starting 
from  the  simple  modes  of  the  earliest  English  friendly 
societies  of  collecting  a  specified  pittance  from  each  mem- 
ber after  the  death  of  a  member  to  pay  to  his  widow  or 
orphans,  it  has  traveled  a  road  of  its  own,  according  to 
the  requirements  of  the  land  and  its  conditions.  This 
road  has  been  something  like,  though  in  many  things 
unlike,  the  course  of  the  prototypes  of  American  assess- 
ment societies,  the  friendly  societies.  It  has  been  like  in 
that  it  has  in  the  main  led  from  these  crude  forms,  based 
on  apportionment'of  cost  according  to  age  at  entry  or 
merely  according  to  number  of  lives,  the  same  at  all  ages, 
to  the  adoption  of  plans  nearer  to  the  approbation  of  actu- 
aries, based  upon  the  apportionment  of  cost  according  to 
actual  attained  ages,  that  is,  by  an  increasing  scale.  It 
has  been  unlike  in  that  the  friendly  societies  have  con- 
fined their  operations  to  people  of  small  means  who  could 
carry  but  little  insurance  while  the  American  societies 
have,  by  reason  of  the  legal  reserve  requirement,  been 
enabled  to  reach  many  of  the  well-to-do. 

The  effect  of  the  legal  reserve  requirement  is  to  limit 
the  minimum  price  at  which  regular  companies  can  sell 
insurance.  It  does  not  do  this  quite  so  directly,  but  by 
so  slight  an  indirection  that  the  effect  is  immediate.      In 


122 

the  first  place,  it  requires  companies  to  hold  a  reserve  suf- 
ficient to  meet  claims  according  to  a  certain  table  and  a 
certain  rate  of  interest.  It  may  well  happen  that  the 
company  is  not  experiencing  and  will  not  experience  any 
such  mortality  and  that  it  will  earn  a  much  higher  inter- 
est; it  might,  also,  be  at  that  very  time  apparent  that  the 
company  would  experience  a  higher  mortality  and  earn 
a  lower  interest;  in  either  case  the  reserve  requirement  is 
inflexible.  Practically,  and  especially  in  the  first  year 
or  so,  the  company  cannot  hold  this  reserve  unless  it 
charges  a  premium  at  least  equal  to  the  net  premium  by 
the  same  mortality  and  interest  as  prescribed  in  the  re- 
serve requirement.  But,  even  though  the  company  could 
demonstrate  that  it  was  able  to  make  good  these  reserves 
on  a  smaller  premium,  the  reserve  requirements  intervene 
by  calling  for  an  extra  reserve  equivalent  to  the  single 
premium  for  an  annuity  on  the  life  of  the  insured  equal 
to  the  annual  difference.  Thus,  if  it  reduced  the  premium 
one  dollar,  it  might  become  chargeable  at  once  with  an 
extra  reserve  of  as  much  as  the  whole  premium. 

Moreover,  the  reserve  requirement  not  merely  limits 
the  premium  which  a  company  can  offer  to  an  amount 
considerably  larger  than  some  companies  have  furnished 
insurance  for;  it  also  unreasonably  allows  nothing  for  the 
larger  outlay  for  expenses  for  the  first  year  of  insurance. 
The  effect  of  this  is  that  the  companies  with  a  large  insur- 
ance in  force  can  set  a  pace  in  the  commissions  for  new 
insurance  which  the  smaller  and  newer  companies  cannot 
follow,  except  with  the  result  ot  limiting  the  amount  of 
business  which  they  can  accept.  The  effect  of  this,  also, 
is  to  establish  the  principle  that  a  company  can  properly 
buy  business  with  moneys  not  derived  from  the  purchaser 
of  the  insurance. 


123 

This  <:ombination  of  circumstances  brought  about  the 
situation  that  few  new  regular  companies  were  organized; 
that  those  which  were  organized  were  handicapped  in  the 
race;  that  none  of  the  companies  could  offer  the  induce- 
ment of  lower  rates,  and  that  pure  insurance  in  the  regu- 
lar companies  became  unpopular.  Of  this  situation  the 
assessment  societies  have  taken  advantage.  In  the  field 
of  pure  insurance  at  its  current  cost,  or  at  anything  very 
closely  approaching  its  current  cost,  they  have  practically 
had  the  field  to  themselves,  save  for  the  original  divi- 
dend-reducing natural  premium  policy  of  the  Provident 
Savings,  which  was  abandoned  in  1887,  and  the  dividend- 
reducing  ten-year  term  policy  of  the  Provident  Life  and 
Trust,  recently  adopted.  Policies  which  were  ofiered  at 
lower  than  standard  whole-life  premiums,  such  as  renew- 
able term  policies  in  the  ^tna,  have  been  popular;  but 
they  were  not  direct  competition  with  the  insurance 
furnished  by  the  fraternities  and  societies,  for  they  con- 
tained a  modicum  of  accumulative  investment  frequently 
approaching  one-half  of  the  whole  premium. 

There  are  many  people  in  the  United  States  who  wish 
pure  insurance.  A  very  large  proportion  of  those  who 
carry  insurance  in  the  regular  companies  also  carry  con- 
siderable amounts  of  insurance  in  these  societies.  Indeed, 
the  records  show  that  altogether  more  than  one-half  of  the 
total  insurance  of  the  country  is  probably  carried  by  these 
societies.  On  the  whole,  by  economical  management, 
they  have  earned  the  reputation  of  being  the  cheapest 
purveyors  of  pure  insurance,  although,  perhaps,  in  gen- 
eral, the  medical  selection  of  risks  among  them  is  not  so 
severe  as  with  the  regular  companies.  Even  in  the  older 
associations,  however,  when  honestly  managed,  economy 
has  offset  the  inevitable  increase  in  average  death-rate, 
save  when  unusual  circumstances  aggravated  it. 


124 

These  unusual  circumstances  commonly  center  about  a 
want  of  promptness  in  paying  losses  and  that,  in  turn, 
arises  from  fatuous  or  cowardly  neglect  of  the  managers 
to  collect  sharply  in  advance  assessments  sufficient  to 
cover  all  accrued  losses  and  losses  likely  to  accrue  before 
the  next  assessment  is  levied  and  paid.  Except  when, 
by  reason  of  size  or  special  reserve  or  what  not,  the 
society  possesses  great  virility,  the  dragging  of  a  mass  of 
unpaid  claims  is  surely  fatal  to  it.  Managers  can  make 
uo  worse  mistake  than  to  seek  to  avoid  disappointing  the 
members  about  the  cost  of  insurance  by  holding  back 
assessments  which  should  be  called,  in  the  vain  hope  that 
something  may  transpire  to  render  it  unnecessary.  If 
that  something  should  once  transpire,  it  would  be  almost 
a  misfortune,  for  it  would  be  likely  to  embolden  the 
managers  to  repeat  the  perilous  experiment.  It  would 
not  be  too  much  to  say  that  no  honestly  conducted  Amer- 
ican assessment  society  has  failed,  the  managers  of  which 
unfalteringly  called  month  by  month  for  ample  assess- 
ments, paying  no  heed  to  complaints  or  to  withdrawals. 
A  good  example  of  the  virtue  of  this  mode  of  procedure 
is  the  United  Brethren's  Mutual  Aid  Association,  which 
has  for  years  experienced  mortality  which  everybody 
supposed  would  be  fatal  to  an  assessment  organization. 

If  this  be  true,  that  no  association  needed  to  have  failed 
if  it  had  resolutely  demanded  what  its  insurance  was  cost- 
ing, it  indicates,  perhaps,  that  life  insurance  is  practicable 
even  on  plans  of  apportioning  cost  in  level  assessments  at 
all  ages  or  in  graded  assessments  fixed  at  ages  of  entry. 
It  is  not  sure  that  it  indicates  this,  and  it  certainly  is  not 
sure  that  the  societies  must  fail  if  it  does  not  prove  in  the 
end  that  these  plans  are  practicable.  But  while  no  actuary 
who  confines  himself  to  what  he  knows  and  can  demon- 


strate,  would  dare  to  assert  that  these  plans  are  practica- 
ble, it  is  equally  true  that  he  ought  not  to  assert  too  dog- 
matically that  they  are  impracticable.  For  their  actual 
operation  is  so  intricate  and  involved  a  thing,  and  so  far 
removed  from  the  application  of  data  through  mathe- 
matics, that  he  can  but  flounder  when  he  seeks  to  demon- 
strate their  impracticability  ;  his  floundering  is  an  indica- 
tion, but  not  a  demonstration,  that  the  societies  will  also 
flounder  and  go  to  pieces.  The  thing  which  an  actuary 
can  with  safety  assert  and  demonstrate  is  that  insurance 
on  the  basis  of  apportioning  losses  according  to  actual 
attained  ages  is  safe  and  practicable  and  that  the  safety 
and  practicability  of  either  of  the  other  plans  are  not 
demonstrable. 

It  follows  that,  whenever  an  association  finds  it  desira- 
ble to  change  its  plan,  it  will  do  the  wise  and  prudent 
thing  to  change  to  plans  based  upon  apportioning  cost  of 
insurance  according  to  attained  ages.  This  change  may 
be  made  early  or  late  in  the  history  of  the  society, 
according  to  the  judgment  of  its  managers.  The  time  to 
make  it  is  when  the  managers  are  convinced  of  its  neces- 
sity. An  utterly  useless  time  to  make  it  is  when  man- 
agers have  permitted  the  good  name  of  the  society  to  be 
destroyed'by  dragging  unpaid  claims.  And  a  very  fool- 
ish way  to  make  it  is  by  tinkering  with  the  subject  with- 
out as  competent  actuarial  advice  as  can  be  obtained.  A 
manager  who  is  convinced  of  his  one-time  folly,  but  not 
yet  of  the  unwisdom  of  running  things  alone  and  with  a 
high  hand,  does  not  deserve  to  succeed. 

But  in  any  society  which  has  collected  money  enough 
to  pay  its  claims  and  has  paid  them,  and  which  has  pre- 
served its  good  name,  the  change  can  be  made.  In 
making  it  the  greatest  care  must  be  exercised  to  deal 


126 

fairly  between  the  old  members  on  the  old  plan  and  the  new 
members  on  the  new  plan.  The  old  members  are  entitled 
to  this  one  advantage  from  the  accession  of  new  mem- 
bers— that  the  favorable  effect  on  mortality  cost  because 
of  this  accession  should  inure  equally  to  their  benefit. 
In  all  other  particulars  they  are  distinct,  but  they  should 
not  be  put  off  in  what  is  practically  a  company  by  them- 
selves, paying  their  own  losses  by  their  own  assessments. 
Instead,  their  fair  share  of  the  total  loss  of  the  society 
sho.uld  be  apportioned  among  them  by  the  agreed  mode 
of  assessment  and  the  fair  share  of  the  new  members 
among  them  according  to  the  mode  of  apportionment 
agreed  upon  with  them.  Thus,  though  a  society  should 
have  in  turn  used  and  forsaken  each  of  the  three  modes, 
it  would  be  possible  to  apportion  to  each  member  his  fair 
share  of  the  total  loss  according  to  the  mode  of  appor- 
tionment which  obtained  in  his  case. 

Of  course,  it  will  be  desirable  to  transfer  the  members 
over  to  the  new  plans  as  rapidly  as  it  can  be  accomplished 
by  proper  means.  This  is  not  difiicult,  commonly,  if  the 
business  has  been  conducted  all  along  in  a  manner  which 
commands  their  confidence.  The  old  plans  have  usually 
lost  their  attractiveness  and,  if  the  new  be  devised  inge- 
niously, they  should  attract  the  old  members  to  exchange. 
In  any  case,  the  increasing  cost  on  the  abandoned  plans 
will  likely  prove  sufiicient  to  convince  the  old  members 
of  the  wisdom  of  the  exchange,  provided  this  increase  be 
not  accompanied  with  any  unjust  discrimination  which 
would  be  likely  to  have  the  effect  of  wholly  alienating 
them. 

Many  associations  are  now  changing  from  the  old  forms 
of  apportioning  the  cost  of  insurance  to  the  accepted, 
standard  method.     Most   of  the   new  organizations   are 


127 

adopting  that  principle.  Some  very  successful  societies 
have  been  built  up  on  that  basis  from  their  very  organi- 
zation. Kven  a  pure  insurance  fraternity,  the  National 
Union,  has  obtained  a  large  membership  on  an  increasing 
cost  plan,  though  it  actually  increases  the  rate  of  assess- 
ment more  rapidly  than  the  normal  increase  of  risk  war- 
rants. But  the  largest  and  most  frequent  application  of 
the  principle  has  been  to  plans  which  contemplated  fur- 
nishing insurance  at  the  lowest  possible  level  price,  based 
upon  an  increasing  cost  and,  consequently,  by  means  of  a 
supplemental  reserve.  This  is  a  near  approach  to  regu- 
lar insurance,  divided  from  it,  indeed,  by  the  fact  that  the 
price  is  not  warranted,  but  in  principle  identical  with  it. 
If  the  privilege  of  increasing  the  price  is  availed  of  as 
soon  as  it  becomes  evident  to  the  trained  perceptions  of  a 
skilled  actuary  that  it  is  necessary  to  increase  the  price, 
the  success  of  these  societies  may  safely  be  prophesied. 
Otherwise,  a  more  certain  ruin  than  has  been  expected  to 
overwhelm  societies  proceeding  on  simpler  plans  may  be 
inevitable.  Just  as  the  pure  insurance  association  which 
permits  its  losses  to  drag  unpaid  is  sure  to  fail,  so,  though 
not  so  soon  apparent,  the  society  which  fails  to  promptly 
increase  its  premiums  when  either  rise  of  mortality  or  fall 
of  interest  shows  it  to  be  necessary  will  surely  fail.  The 
privilege  of  increasing  the  price  is  useful  only  if  used 
betimes;  a  large  and  sudden  increase  would  be  fatal. 

The  outlook  is  reasonably  hopeful.  To  be  sure,  there 
are  associations  in  all  stages  of  progress,  from  almost  the 
most  elemental  and  primitive  form  to  the  most  developed. 
And  there  is  still  an  alarming  number  of  false  prophets  in 
the  field  who,  through  their  own  error  or  through  evil 
intent,  seek  to  lead  the  societies  into  dangerous  ways. 
But   the  system  has   the   advantage   of  having   been  a 


128 


growth ;  it  has  sprung  from  the  people  and  has  the  tough 
fiber  of  a  popular  institution.  It  has  stood  and  will  stand 
rough  handling;  almost  anything,  indeed,  but  the  fatuous 
,>r  craven  refusal  of  its  managers  to  carry  out  the  plans  in 
spirit  and  truth.  There  is  no  doubt  whatever — there 
iiever  has  been  any  reason  for  doubt — that  the  larger 
number  of  those  who  rely  upon  insurance  in  these  asso- 
ciations will  be  disappointed  in  the  end  as  to  the  cost ; 
they  have  also  been  disappointed  in  regular  companies. 
They  do  not  need  to  be  disappointed,  also,  as  to  the 
insurance  itself  if,  first,  tlie  societies  will  change  plans 
when  it  becomes  expedient ;  second,  if  they  will  under  all 
plans  insist  that  enough  be  collected  to  pay  current  losses 
and  to  carry  out  the  provisions  of  the  plan. 


O^HIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.00  ON  THE  SEVENTH  DAY 
OVERDUE. 


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GENERAL  LIBRARY  -  U.C.  BERKELEY 


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